Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue g
ID: 2447150 • Letter: C
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:
Units in beginning inventory
0
Units produced
10,300
Units sold
8,700
Units in ending inventory
1,600
Variable costs per unit:
Direct materials
$ 60
Direct labor
40
Variable manufacturing overhead
10
Variable selling and administrative
30
Total variable cost per unit
$ 140
Fixed costs:
Fixed manufacturing overhead
$
220,000
Fixed selling and administrative
900,000
Total fixed costs
$
1,120,000
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 the year.
3.
What is the company’s break-even point in terms of the number of barbecue grills sold?
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:
Explanation / Answer
1)
The product cost is as follows:
Particulars
Amount
Direct materials
60
Direct labour
40
Variable manufacturing overhead
10
Product cost per unit
110
2)
Income statement is as follows:
Particulars
Amount
Sales per unit
300
Less:
Product cost per unit
110
Variable admin expense
30
Contribution
160
Total contribution
1,392,000
Less:
Fixed manufacturing overhead
220,000
Fixed selling and admin expense
900,000
Net income
272,000
The net profit is 272,000.
3)
Break even sales = Fixed costs/Contribution per unit
=1,120,000/160
=7,000 units
Particulars
Amount
Direct materials
60
Direct labour
40
Variable manufacturing overhead
10
Product cost per unit
110
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