Question

ariable 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	$4.50
Direct labor	2.50
Variable overhead	1.25
Fixed overhead*	6.50
Variable marketing cost	0.95

^* Fixed overhead per unit = $279,500 / 43,000 units produced = $6.50

Total fixed factory overhead is $279,500 per month. During October, 42,000 units were sold at a price of $23.75, 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

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Pattison
Answer 1	Amount $	Note
Direct materials	4.50
Direct labor	2.50
Variable manufacturing overhead	1.25
Cost per unit- variable costing	8.25	A
Answer 2	Whole Units
Units produced	43,000.00
Less: Units sold	42,000.00
Units in ending inventory	1,000.00	P
Cost per unit- variable costing	8.25	See A
Cost of ending inventory	8,250.00	Q=P*A
Workings for answer 3	Amount $
Manufacturing costs per unit	8.25	See A
Units sold	42,000.00	B
Variable Cost of goods sold	346,500.00	C=A*B
Sell price	23.75	D
Units sold	42,000.00	See B
Sales	997,500.00	E=B*D
Variable marketing cost per unit	0.95	F
Units sold	42,000.00	See B
Variable marketing cost	39,900.00	G=H*B
Answer 3
Variable costing income statement	Amount $
Sales	997,500.00	See E
Less: Variable costs
Costs of goods sold	346,500.00	See C
Selling and admin expense	39,900.00	See G
Contribution margin	611,100.00
Less: Fixed costs
Fixed factory overhead	279,500.00
Fixed selling and admin	111,800.00
Total Fixed costs	391,300.00
Operating Income	219,800.00
Answer 4	November
Units in opening inventory	1,000.00	See P
Add: Units produced	43,000.00
Less: Units sold	44,000.00	O
Units in ending inventory	-
So cost of ending inventory in November is zero.
Workings for answer 3	Amount $
Manufacturing costs per unit	8.25	See A
Units sold	44,000.00	See O
Variable Cost of goods sold	363,000.00	R=A*O
Sell price	23.75	See D
Units sold	44,000.00	See O
Sales	1,045,000.00	S=O*D
Variable marketing cost per unit	0.95	See F
Units sold	44,000.00	See O
Variable marketing cost	41,800.00	T=F*O
Answer 4
Variable costing income statement	Amount $
Sales	1,045,000.00	See S
Less: Variable costs
Costs of goods sold	363,000.00	See R
Selling and admin expense	41,800.00	See T
Contribution margin	640,200.00
Less: Fixed costs
Fixed factory overhead	279,500.00
Fixed selling and admin	111,800.00
Total Fixed costs	391,300.00
Operating Income	248,900.00