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 9,500 Units sold 8,400 Units in ending inventory 1,100 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 $ 180,000 Fixed selling and administrative 780,000 Total fixed costs $ 960,000 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 last year. 3. What is the company’s break-even point in terms of the number of barbecue grills sold?

Answer 1

Answer:

Results are below.

Explanation:

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

Unitary production variable cost= 60 + 40 + 10

Unitary production variable cost= $110

Now, the income statement:

Sales= 300*8,400= 2,520,000

Total variable cost= 8,400*(110 + 30)= (1,176,000)

Total contribution margin= 1,344,000

Fixed manufacturing overhead= (180,000)

Fixed selling and administrative= (780,000)

Net operating income= $384,000

Finally, the break-even point in units:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units=  960,000 / (300 - 140)

Break-even point in units= 6,000