Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 9

Absorption Costing, Value of Ending Inventory, Operating Income
Pattison Products, Inc., began operations in October and manufactured 40,000 units during the month with the following unit costs:

* Fixed overhead per unit = $280,000/40,000 units produced = $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?