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 9,700 Units sold 8,400 Units in ending inventory 1,300 Variable costs per unit: Direct materials $ 80 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 140 Fixed costs: Fixed manufacturing overhead $ 200,000 Fixed selling and administrative 1,160,000 Total fixed costs $ 1,360,000

Explanation / Answer

REQ1 UNIT PRODUCT COST UNDER VARIABLE COSTING Direct Material 80 Direct Labour 20 Vvariable Manufacturing OH 10 Total Product Cost 110 REQ2 CONTRIBUTION MARGIN INCOME STATEMENT Amount Cost per unit Sales revenue (8400 units @ 300) 2520000 300 Less: Variable Cost: Material (8400 units @80) 672000 80 Labouor (8400 units @20 168000 20 Variable Mfg OH (8400 units @10) 84000 10 Variable Selling admin OH (8400 units @30) 252000 30 Total Variable cost 1176000 140 Contribution Margin 1344000 160 Less: Fixed Cost: Fixed manufacturing OH 200000 Fixed Selling admin OH 1160000 Total fixed Cost 1360000 Net Income/(Loss) -16000 Req 3: Break even Point: Fixed Cost / Contribution margin per unit = 1360,000 /160 = 8500 units

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