Problem 2-40 Financial Statement Elements; Cost Behavior (LO 2-5, 2-6, 2-8)

[The following information applies to the questions displayed below.]

Mason Corporation began operations at the beginning of the current year. One of the companys products, a refrigeration element, sells for $185 per unit. Information related to the current years activities follows.

Variable costs per unit:
Direct material	$	20
Direct labor		36
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.

Problem 2-40 Part 1

Required:

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

2. Compute Masons net income for the current year ended December 31.

3. If next years 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 $36 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