Question

Variable Costing, Value of Ending Inventory, Operating Income

Pattison Products, Inc., began operations in October and manufactured 43,000 units during the month with the following unit costs:

Direct materials	$5.10
Direct labor	3.10
Variable overhead	1.55
Fixed overhead*	7.10
Variable marketing cost	1.25

* Fixed overhead per unit = $305,300 / 43,000 units produced = $7.10

Total fixed factory overhead is $305,300 per month. During October, 42,000 units were sold at a price of $25.25, and fixed marketing and administrative expenses were $111,800.

Required:

1. Calculate the cost of each unit using variable costing. Round your final answer to the nearest cent.

$ per unit

2. How many units remain in ending inventory?
units

What is the cost of ending inventory using variable costing?
$

3. Prepare a variable-costing income statement for Pattison Products, Inc., for the month of October.

Pattison Products, Inc.
Variable-Costing Income Statement
For the Month of October
	$
Less:
Contribution margin	$
Less:
Operating income	$

4. What if November production was 43,000 units, costs were stable, and sales were 44,000 units? What is the cost of ending inventory? If an amount is zero, enter "0".
$

What is operating income for November?
$

Answer 1

Answer 1.:

Cost of each unit using variable costing = Direct materials + Direct labor + Variable overhead

= 5.10 + 3.10 + 1.55 = $9.75

Answer 2 :

Units remain in ending inventory = Units produced - Units sold = 43,000 units  - 42,000 units =1,000 units

Cost of ending inventory using variable costing = Units remain in ending inventory  * Cost of each unit using variable costing

= 1,000 units * $9.75 = $9,750

Answer 3 :

Pattison Products, Inc

Variable-Costing Income Statement

For the Month of October

Sales (42,000 units * $25.25)	$1,060,500
Less : Variable Expense :
Variable cost of goods sold (42,000 units * $9.75)	409,500
Variable marketing cost (42,000 units * $1.25)	52,500
Contribution margin	598,500
Less : Fixed expenses :
Fixed overhead	305,300
Fixed marketing and administrative expenses	111,800
Operating income	$181,400

Answer 4:

Units in ending inventory in November = Beginning inventory + Units produced - Units sold = 1,000 +43,000 - 44,000 = 0

Cost of ending inventory in November = 0

Answer 5 :

Pattison Products, Inc

Variable-Costing Income Statement

For the Month of November

Sales (44,000 units * $25.25)	$1,111,000
Less : Variable Expense :
Variable cost of goods sold (44,000 units * $9.75)	429,000
Variable marketing cost (44,000 units * $1.25)	55,000
Contribution margin	627,000
Less : Fixed expenses :
Fixed overhead	305,300
Fixed marketing and administrative expenses	111,800
Operating income in November	$209,900