Question

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 overhead 1.50
Fixed overhead 7.00
Variable marketing cost 1.20
Fixed overhead per unit 1.20
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.

Answer 1

Answer:

Following are the responses to the given question:

Explanation:

For question 1:

Calculating the cost per unit:

$\text{Direct material}\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5\\\\\text{Direct labor} \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3\\\\\text{Variable overhead}\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.5\\\\\text{Fixed overhead}\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7\\\\\text{Cost per unit}\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 16.5$

For question 2:

Calculating the ending inventory units:

$= \text{Beginning inventory + units produced - ending inventory}\\\\= 0+40,000-38,400\\\\= 1600\ units$

Calculating the cost for the Ending inventory:

$=1600\ units \times \ 16.5\\\\=\ 26,400$

For question 3:

Calculating the absorption costing for the income statement:

Particular                                             Amount

Sales $(38,400\times \ 24)\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 921,600$

-COGS$(38,400\times \ 16.5)\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 633,600$

Gross profit                                          $\ 288,000$

Cost of variable marketing  $(\ 1.2\times 38,400)\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 46,080$

marketing and administrative costs are fixed $\ 130,500$

Net income                                            $\ 111,420$