Aerotrino produces and sells popular t-shirts. Following is information about its t-shirts for...
Question:
Aerotrino produces and sells popular t-shirts. Following is information about its t-shirts for 2014:
| Selling price | $15.00 per t-shirt |
| Variable costs | $3.50 per t-shirt |
| Production (manufacturing costs) | |
| Selling & administration | $1.00 per t-shirt |
| Fixed costs | $1,000,000 per year |
| Production (manufacturing costs) | |
| Selling & administration | $2,000,000 per year |
During 2014, the company produced 400,000 t-shirts and sold 350,000 of them. Assume that there was no beginning inventory. How much is the inventory under full costing on December 31, 2014?
A. $225,000
B. $175,000
C. $275,000
D. $300,000
Absorption Costing
Absorption Costing, also known as Full Costing is a method of valuing inventory. It includes all variable and fixed manufacturing overhead costs. However, it is important to note that selling and administrative costs (both fixed and variable) are excluded, as these costs are period costs and must be expensed in the period that they were incurred. Absorption costing is useful for companies because it allows the company to see all of the costs that are related to the production of the unit attached to the unit in its inventory valuation.
Answer and Explanation: 1
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View this answerFirst, let's calculate the cost per unit under the full costing method:
Cost Per Unit = Variable Costs + Allocated Fixed Costs
| Variable Costs | $3.50 | g... |
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