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. Information related to the current year’s activities follows.

Variable costs per unit:
Direct material	$	15
Direct labor		37
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.

Required:

1. Determine the cost of the December 31 finished goods inventory.

Compute Mason’s net income for the current year ended December 31.

f 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?

• 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

• Decrease

Answer 1