Chuck Wagon Grills Inc makes a single producta handmade spec

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 Units produced Units solod Units in ending inventory Variable costs per unit 9,900 8,000 1,900 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 60 40 10 30 Total variable cost per unit 140 Fixed costs Fixed manufacturing overhead Fixed selling and administrative $ 210,000 750,000 Total fixed costs $ 960,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill Unit product cost$110

Solution

1) Unit Product Cost $ 110 Working: When variable costing is used, unit product cost is the variable manufacturing cost. variable selling and administrative costs are not manufcaturing cost.So, it is not included in unit product cost. Unit product cost is calculated as follows: Direct Materials $             60 Direct Labor $             40 Variable Manufacturing cost $             10 Unit Product Cost $           110 2) Chuck Wagon Grills, Inc. Variable costing Income statement Sales $ 24,00,000 Variable expenses: Direct Materials $       4,80,000 Direct Labor $       3,20,000 Variable Manufacturing cost $           80,000 Variable selling and administrative $       2,40,000 $ 11,20,000 Contribution Margin $ 12,80,000 Fixed expenses: Fixed Manufacturing overhead $       2,10,000 Fixed Selling and administrative $       7,50,000 $   9,60,000 Net Operating Income $   3,20,000 Working: a. Sales = Units sold x Selling Price per unit =         8,000 x $        300 = $ 24,00,000 b. Variable expenses: Direct Materials Units sold x Direct Material per unit 8000 x $          60 = $   4,80,000 Direct Labor Units sold x Direct labor per unit 8000 x $          40 = $   3,20,000 Variable Manufacturing cost Units sold x Variable Manufacturing cost per unit 8000 x $          10 = $       80,000 Variable selling and administrative Units sold x Variable Selling and administrative cost per unit 8000 x $          30 = $   2,40,000 $ 11,20,000 3) Break-even point 6,000 units Working: a.Calculation of contribution Margin per unit: Sales Price per unit $           300 Less:Variable costs per unit $           140 Contribution Margin per unit $           160 b. Break-even point = Fixed Costs / Contribution Margin per unit = $ 9,60,000 / $             160 =           6,000