Madigan Company commenced operations at the beginning of the current year. One of the company’s products, a refrigeration element, sells for $185 per unit, Information related to the current year’s activities follows.
Madigan carries its finished goods inventory at the average unit cost of production and is subject to a 30 per cent income tax rate. There was no work in process at year end.
Requirement:
1. Determine the cost of 31 Determine finished goods inventory.
2. Calculate Madigan’s net profit for the year ended 31 December.
3. If next year’s production decreases to 23,000 units and general cost behavior patterns do not change, what is the likely effect on:
(a) Direct labour cost of $37 per unit? Explain why.
(b) Fixed manufacturing overhead cost of $600,000? Explain why.
(c) Fixed selling and administrative cost of $860,000? Explain why.
(d) Average unit cost of production? Explain why.
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