Answer to Question #264190 in Other for Novella

Question

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.

Variable costs per unit:

Direct material...20

Direct labor.......................37

Manufacturing overhead...48

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 percent income tax rate.

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?

b. The fixed manufacturing overhead cost of $600,000?

c. The fixed selling and administrative cost of $860,000?

d. The average unit cost of production?

Answer 1

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