Scranton Refrigeration Corporation began operations at the beginning of the current year. One of the company’s products, a compressor, sells for $370 per unit. Information related to the current year’s activities follows.

Variable costs per unit:

Direct material.............................................................. $ 40

Direct labor........................................................................ 74

Manufacturing overhead................................................... 96

Annual fixed costs:

Manufacturing overhead..................................... $1,200,000

Selling and administrative.................................... 1,720,000

Sales and production activity:

Sales (units)................................................................ 20,000

Production (units)...................................................... 24,000

Scranton Refrigeration carries its finished-goods inventory at the average unit cost of production and is subject to a 40% income tax rate. There was no work in process at year-end.

Required:

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

2. Compute Scranton Refrigeration’s net income for the current year ended December 31.

3. If next year’s production decreases to 22,500 units and general cost behavior patterns do not change, what is the likely effect on:

a. The direct-labor cost of $74 per unit? Why?

b. The fixed manufacturing overhead cost of $1,200,000? Why?

c. The fixed selling and administrative cost of $1,720,000? Why?

d. The average unit cost of production? Why?