Aerotrino produces and sells popular t-shirts.Following is information about its t-shirts for 2017: $\begin{array}{lr}
\text { Selling price } & \$ 15.00 \text { per t-shirt } \
\text { Variable costs: } & \
\text { Production (manufacturing costs) } & \$ 3.00 \text { per t-shirt }\\text { Selling } \& \text { administration } & \$ 1.00 \text { per t-shirt } \
\text { Fixed costs: } & \
\text { Production (manufacturing costs) } & \$ 1,000,000 \text { per year } \
\text { Selling \& administration } & \$ 2,000,000 \text { per vear }
\end{array}$ During 2017, the company produced 400,000 t-shirts and sold 350,000 of them.Assume that there was no beginning inventory.How much is the net income under full costing?
A)$975,000
B)$1,400,000
C)$850,000
D)$2,250,000

Question

Aerotrino produces and sells popular t-shirts.Following is information about its t-shirts for 2017: $\begin{array}{lr}
\text { Selling price } & \$ 15.00 \text { per t-shirt } \
\text { Variable costs: } & \
 \text { Production (manufacturing costs) } & \$ 3.00 \text { per t-shirt }\\text { Selling } \& \text { administration } & \$ 1.00 \text { per t-shirt } \
\text { Fixed costs: } & \
\text { Production (manufacturing costs) } & \$ 1,000,000 \text { per year } \
\text { Selling \& administration } & \$ 2,000,000 \text { per vear }
\end{array}$ During 2017, the company produced 400,000 t-shirts and sold 350,000 of them.Assume that there was no beginning inventory.How much is the net income under full costing?
A)$975,000
B)$1,400,000
C)$850,000
D)$2,250,000

Quizplus · Accepted Answer

Under full costing, net income is calculated by subtracting total costs (both variable and fixed) from total sales revenue. The cost of goods sold includes both variable and fixed production costs. The fixed production cost per unit is $1,000,000 / 400,000 = $2.50. The total cost per unit is $3.00 (variable) + $2.50 (fixed) = $5.50. Total cost of goods sold for 350,000 units is 350,000 * $5.50 = $1,925,000. Total sales revenue is 350,000 * $15 = $5,250,000. Selling and administration costs are $1.00 per unit variable and $2,000,000 fixed, totaling $2,350,000. Net income is $5,250,000 - $1,925,000 - $2,350,000 = $975,000.

Aerotrino Produces and Sells Popular T-Shirts During 2017, the Company Produced 400,000 T-Shirts and Sold 350,000