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 10,400 Units sold 8,100 Units in ending inventory 2,300 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 $ 190,000 Fixed selling and administrative 1,170,000 Total fixed costs $ 1,360,000

Explanation / Answer

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?

Break even point unit = Fixed cost/contribution margin per unit

                                   = 1360000/(300-140)

Break even point unit = 8500 units

Direct material 60 Direct labour 40 Variable manufacturing overhead 10 Unit product cost under variable costing 110

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