Pattison Products, Inc., began operations in October and manufactured 40,000 units during themonth with the following unit costs: Direct materials $5.00Direct labor 3.00Variable overhead 1.50Fixed overhead* 7.00Variable marketing cost 1.20*Fixed overhead per unit 5 $280,000/40,000 units produced 5 $7. Total fixed factory overhead is $280,000 per month. During October, 38,400 units were sold at aprice of $24, and fixed marketing and administrative expenses were $130,500.Required:1. Calculate the cost of each unit using absorption costing.2. How many units remain in ending inventory? What is the cost of ending inventory usingabsorption costing?3. Prepare an absorption-costing income statement for Pattison Products, Inc., for the monthof October.4. What if November production was 40,000 units, costs were stable, and sales were 41,000units? What is the cost of ending inventory? What is operating income for November?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Pattison Products, Inc., began operations in October and manufactured 40,000 units during the
month with the following unit costs:
Direct materials $5.00
Direct labor 3.00
Variable
Fixed overhead* 7.00
Variable marketing cost 1.20
*Fixed overhead per unit 5 $280,000/40,000 units produced 5 $7.
Total fixed factory overhead is $280,000 per month. During October, 38,400 units were sold at a
price of $24, and fixed marketing and administrative expenses were $130,500.
Required:
1. Calculate the cost of each unit using absorption costing.
2. How many units remain in ending inventory? What is the cost of ending inventory using
absorption costing?
3. Prepare an absorption-costing income statement for Pattison Products, Inc., for the month
of October.
4. What if November production was 40,000 units, costs were stable, and sales were 41,000
units? What is the cost of ending inventory? What is operating income for November?
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4. What if November production was 40,000 units, costs were stable, and sales were 41,000 units? What is the cost of ending inventory?
What is operating income for November?
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