Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue g

Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $300. Data for last year’s operations follow:

  

Required:

1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.

2. Assume that the company uses variable costing. Prepare a contribution format income statement for last year.

3. What is the company’s break-even point in terms of the number of barbecue grills sold?

Units in beginning inventory 0 Units produced 9,800 Units sold 8,300 Units in ending inventory 1,500 Variable costs per unit: Direct materials $ 60 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 120 Fixed costs: Fixed manufacturing overhead $ 180,000 Fixed selling and administrative 810,000 Total fixed costs $ 990,000

Explanation / Answer

1. Unit Product Cost under Variable costing = $60 + $20 + $10 = $90

2. Contribution format Income statement

Chuck Wagon Grills, Inc.

Variable Costing Income Statement

Sales

$2,490,000

Variable expenses:

Variable cost of goods sold

$747,000

Variable selling and administrative

$249,000

$996,000

Contribution Margin

$1,494,000

Fixed expenses:

Fixed manufacturing overhead

$180,000

Fixed selling and administrative

$810,000

$990,000

Net Operatig Income

$504,000

3. Break-even point = Fixed cost / Contribution per unit

Contribution per unit = $1,494,000 / 8,300 = $180

BEP = $990,000 / $180 = 5,500 units

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Chuck Wagon Grills, Inc.

Variable Costing Income Statement

Sales

$2,490,000

Variable expenses:

Variable cost of goods sold

$747,000

Variable selling and administrative

$249,000

$996,000

Contribution Margin

$1,494,000

Fixed expenses:

Fixed manufacturing overhead

$180,000

Fixed selling and administrative

$810,000

$990,000

Net Operatig Income

$504,000

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