Waterdown Manufacturing, Which Began Operations on January 1 of the Current

Essay

Waterdown Manufacturing, which began operations on January 1 of the current year, produces an industrial scraper that sells for $325 per unit. Information related to the current year's activities follows. $\begin{array} { l r } \text { Number of scrapers produced } & 20,000 \\\text { Number of scrapers sold } & 17,000 \\\text { Variable costs per unit: } & \\\quad \text { Direct materials } & \$ 25 \\\quad \text { Direct labour } & 35 \\\quad \text { Manufacturing overhead } & 60\\\text { Annual fixed costs: } & \\\quad \text { Manufacturing overhead } & \$ 400,000 \\\text { Selling \& administrative } & 140,000\end{array}$ Waterdown carries its finished-goods inventory at the average unit cost of production. There was no work in process at year-end.
Required:
A. Compute the company's average unit cost of production.
B. Determine the cost of the December 31 finished-goods inventory.
C. Compute the company's cost of goods sold.
D. If next year's production increases to 23,000 units and general cost behaviour patterns do not change, what is the likely effect on:
1. The direct-labour cost of $35 per unit? Why?
2. The fixed manufacturing overhead cost of $400,000? Why?