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Question:Chuck Wagon Grills, Inc., makes a single product – a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow: –Free Chegg Question Answer

Chuck Wagon Grills, Inc., makes a single product – a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow:

Units in beginning inventory 0
units produced 20,000
units sold 19,000
units in ending inventory 1,000

Variable costs per unit:
Direct materials $50
Direct Labor 80
Variable manufacturing overhead 20
Variable selling and admin. 10

Total variable cost per unit $160

Fixed Costs:
Fixed Manufacturing Overhead $700,000
Fixed Selling and Admin. 285,000
Total Fixed Costs $985,000

1. Assume the company uses variable costing. Compute the unit product cost for one barbecue grill.
2. Assume the company uses variable costing. Prepare a contribution format income statement for the year.
3. What is the company’s break-even point in terms of of the number of barbecue grills sold?

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Answer

Step 1 of 3

(1)

Compute unit product cost for one barbecue grill sold under variable costing as follows:

Particulars
Direct materials
Direct labor
Variable manufacturing overhead
Unit product cost for one barbecue grill
Per unit
$

Hence, Unit product cost for one barbecue grill is $150.Part 1

Unit product cost for one barbecue grill is $150.
Explanation | Common mistakes | Hint for next step

Unit product cost for one barbecue grill under variable costing calculated by adding of direct material per grill, direct labor per grill and variable manufacturing overhead per grill. Direct material per grill is $50, direct labor per grill is $80 and variable manufacturing overhead per grill is $20 to find out unit product cost for one barbecue grill under variable costing is $150.

Step 2 of 3

(2)

Working note:

Calculate variable cost of goods sold units as follows:

\begin{array}{c}\\{\rm{Variable cost of Goods sold = }}\,\left\{ \begin{array}{l}\\{\rm{Openning inventory + Units produced}}\\\\{\rm{ }} – \,{\rm{Ending inventory}}\\\end{array} \right\}{\rm{ }}\\\\{\rm{ = 0}}\,{\rm{ + }}\,{\rm{20,000}} – \,1,000\\\\ = 19,000\,{\rm{Units}}\\\end{array}VariablecostofGoodssold=⎩⎪⎪⎨⎪⎪⎧​Openninginventory+Unitsproduced−Endinginventory​⎭⎪⎪⎬⎪⎪⎫​=0+20,000−1,000=19,000Units​

Calculate contribution format income statement for CWG incorporation as follows:

Sales
CWG Incorporation
Contribution Format Income Statement
Particulars
Units (A) Per Unit (B)
19,000 $210
Less: Variable co

Hence, Net Operating loss is $35,000.Part 2

Sales
CWG Incorporation
Contribution Format Income Statement
Particulars
Units (A) Per Unit (B)
19,000 $210
Less: Variable co

Explanation | Hint for next step

Calculation of Contribution Format Income statement under variable costing net operating income (loss) find out by deducting variable cost of goods sold from sales to find gross contribution margin. From gross contribution margin deduct variable selling and administrative expenses to find contribution margin. After finding out contribution margin deduct fixed manufacturing overhead and selling and administrative expenses to find out Net operating income (loss) is ($35,000).

Step 3 of 3

Calculate Break – Even Point (numbers).

\begin{array}{c}\\\left. \begin{array}{l}\\{\rm{Break Even point}}\\\\{\rm{ (numbers)}}\\\end{array} \right\}{\rm{ = }}\,\frac{{{\rm{Fixed costs}}}}{{\left( \begin{array}{l}\\{\rm{Selling price per unit }} – \,\\\\{\rm{Variable cost per unit}}\\\end{array} \right)}}\\\\ = \,\,\frac{{\$ 985,000}}{{\left( {{\rm{\$ 210 }} – \,\$ 160\,\,} \right)}}\\\\ = \,\frac{{\$ 985,000}}{{\$ 50}}\\\\ = 19,700\,{\rm{Units}}\\\end{array}BreakEvenpoint(numbers)​⎭⎪⎪⎬⎪⎪⎫​=⎝⎛​Sellingpriceperunit−Variablecostperunit​⎠⎞​Fixedcosts​=($210−$160)$985,000​=$50$985,000​=19,700Units​

Hence, Break-even point (numbers) is 19,700.Part 3

Breakeven point (numbers) of barbecue grills sold is 19,700.
Explanation

Break-even point (numbers) calculated by dividing fixed costs and contribution margin ratio. Contribution margin find out by deducting variable cost per unit from selling price per unit. A fixed cost is $985,000 and contribution margin is $50 to find out break-even point (numbers) is 19,700.

Answer

Part 1

Unit product cost for one barbecue grill is $150.Part 2

Sales
CWG Incorporation
Contribution Format Income Statement
Particulars
Units (A) Per Unit (B)
19,000 $210
Less: Variable co

Part 3

Breakeven point (numbers) of barbecue grills sold is 19,700.



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