Chapter 2, Problem 40P

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.

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. 1. Determine the cost of the December 31 finished-goods inventory.
2. 2. Compute Mason’s net income for the current year ended December 31.
3. 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:
   1. a.      The direct-labor cost of $37 per unit? Why?
   2. b.      The fixed manufacturing overhead cost of $600,000? Why?
   3. c.       The fixed selling and administrative cost of $860,000? Why?
   4. d.      The average unit cost of production? Why?