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 $210. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit 20,000 19,000 1,000 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 50 80 20 Total variable cost per unit 160 Fixed costs Fixed manufacturing overhead Fixed selling and administrative $ 700,000 285,000 Total fixed costs $985,000 Required 1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. cost 2. Assume that the company uses variable costing. Prepare a contribution format income statement for the year Chuck Wagon Grills, Inc. Variable Costing Income Statement Variable expenses: Fixed expenses: 3. What is the company's break-even point in terms of the number of barbecue grills sold? units

Explanation / Answer

Answer

1.

Unit (Variable Costing)

Direct Material

50

Direct Labor

80

Variable Manufacturing Overhead

20

Per unit Cost

150

2.

Income Statement (Variable Costing)

Detail

Net

Sales (@ 210 per unit)

    3,990,000

Less: Cost of Goods Sold

Opening Inventory

                  -  

Add: Cost of goods Manufactured

(20,000 Units * $150 per unit)

   3,000,000

Less: Closing Inventory

(1,000 Units * $150 per unit)

    (150,000)

    2,850,000

Gross Contribution Margin

    1,140,000

Less: Variable Selling and Adm. Expenses

(19,000 Units * $10 per unit)

        190,000

Contribution Margin

        950,000

Less: Fixed Cost

Fixed Manufacturing Cost

      700,000

Fixed Selling and Adm. Expenses

      285,000

        985,000

Net Operating Income

        (35,000)

3.

Breakeven point = Total Fixed Cost / Contribution Margin per unit

= $985,000 / (950,000 / 19,000 Units)

Breakeven point (In Units) = 19,700 Units

Unit (Variable Costing)

Direct Material

50

Direct Labor

80

Variable Manufacturing Overhead

20

Per unit Cost

150

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