Question

Mason Corporation began operations at the beginning of the current year. One of the company’s products, a refrigeration element, sells for $195 per unit. Information related to the current year’s activities follows.

Variable costs per unit:

Direct material $ 20

Direct labor 36

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 percent income tax rate. There was no work in process at year-end.

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 $36 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 • Decreas

Answer 1