Required information [The following information applies to the questions display
ID: 2338567 • Letter: R
Question
Required information [The following information applies to the questions displayed below.] Mason Corporation began operations at the beginning of the current year. One of the company’s products, a refrigeration element, sells for $185 per unit. Information related to the current year’s activities follows.
Variable costs per unit: Direct material $ 20 Direct labor 37 Manufacturing overhead 46
Annual fixed costs: Manufacturing overhead $ 600,000 Selling and administrative 860,000
Production and sales activity: Production (units) 24,000 Sales (units) 20,000
Mason carries its finished goods inventory at the average unit cost of production and is subject to a 30
Questions
1.
1. Determine the cost of the December 31 finished goods inventory.
2. Compute Mason’s net income for the current year ended December 31.
3. If next year’s production decreases to 23,000 units and general cost behavior patterns do not change, what is the likely effect on:
a. The direct-labor cost of $37 per unit?
No change
Increase
Decrease
b. The fixed manufacturing overhead cost of $600,000?
No change
Increase
Decrease
c. The fixed selling and administrative cost of $860,000?
No change
Increase
Decrease
d. The average unit cost of production?
No change
Increase
Decrease
Explanation / Answer
Req 1. Unit product cost: Material per unit 20 Labour per unit 37 Varriable manufacturing OH per unit 46 Fixed Manufacturing Oh per unit (600,000/24000) 25 Unit product cost: 128 Number of units produced 24000 Less: Units sold 20000 Ending inventory of FG 4000 Unit product cost 128 Ending Inventory of FG in $ 512000 Req 2. Net Income for the year: Sales revenue (20000*185) 3700000 Less: Cost of goods sold (20000*128) 2560000 Gross Margin 1140000 Less: Fixed selling expense 860000 Net Operating income 280000 Req 3. a. No change in direct labour cost of $ 37 per unit b. No change in Fixed Manufacturing OH of $ 600000 c. No change in Fixed selling and admin cost of $ 860000. d. Increase in Average unit cost of production.
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