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 $200. 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 10,100 Units sold 8,500 Units in ending inventory 1,600 Variable costs per unit: Direct materials $ 80 Direct labor 40 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 160 Fixed costs: Fixed manufacturing overhead $ 200,000 Fixed selling and administrative 40,000 Total fixed costs $ 240,000

Explanation / Answer

1) unit product cost under variable costing Direct materials 80 Direct labor 40 Variable manufacturing overhead 10 unit product cost under variable costing 130 2) Contribution Format income statement Sales (8500*200) 1700000 less:Variable expense Variable cost of goods sold (8500*130) 1105000 Variable Selling & administrative (8500*30) 255000 Contribution margin 340000 less:Fixed expense Fixed manufacturing overhead 200,000 Fixed selling & administrative 40,000 240,000 Net income 100,000 3) BEP(units) = total fixed cost/contribution per unit 240,000 /(200-160) 6000 units

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