Question

In: Accounting

Variable Costing, Value of Ending Inventory, Operating Income Pattison Products, Inc., began operations in October and...

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?
$

Solutions

Expert Solution

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

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