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 inventory under full costing at December 31, 2017?
A)$150,000
B)$275,000
C)$200,000
D)$325,000

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 inventory under full costing at December 31, 2017?
A)$150,000
B)$275,000
C)$200,000
D)$325,000

Quizplus · Accepted Answer

To calculate the inventory under full costing, we need to consider both variable and fixed costs. The total cost per t-shirt is the sum of variable production costs, variable selling & administration costs, and the allocated portion of fixed costs. The fixed costs need to be allocated based on the number of t-shirts produced.Variable costs per t-shirt = $3.00 (production) + $1.00 (selling & administration) = $4.00Total variable costs for the produced t-shirts = $4.00 * 400,000 = $1,600,000Total fixed costs = $1,000,000 (production) + $2,000,000 (selling & administration) = $3,000,000Total costs for the produced t-shirts = $1,600,000 (variable costs) + $3,000,000 (fixed costs) = $4,600,000Cost per produced t-shirt = $4,600,000 / 400,000 = $11.50Inventory at the end of the year consists of the t-shirts produced but not sold, which is 400,000 - 350,000 = 50,000 t-shirts.Inventory under full costing = 50,000 t-shirts * $11.50 per t-shirt = $575,000However, none of the provided options match the calculated value. Given the options, it seems there might have been a mistake in the calculation or interpretation of the provided options. Based on the information and standard approach to calculating inventory under full costing, the correct calculation should involve determining the cost per t-shirt and multiplying by the unsold inventory. If we reassess the options with the understanding that there might have been a calculation error in the explanation, the correct approach is as follows:The cost per t-shirt is calculated by adding the variable costs and a portion of the fixed costs allocated per t-shirt. Since the fixed costs are spread over the total production, and given the options, it seems there might have been a misunderstanding in the calculation provided. Revisiting the calculation with the correct approach but acknowledging a mistake in the initial explanation, the closest correct option based on standard costing principles and the information provided would be option B, assuming a calculation error in the explanation. However, without the exact calculation leading to one of the provided options, the selection is based on standard costing principles and the acknowledgment of a potential error in the initial calculation steps.

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