Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): $$\begin{array} { l r }
\text { Selling price } & \$ 9.00 \text { per mug } \
\text { Variable production cost } & \$ 2.50 \text { per mug } \
\text { Variable selling cost } & \$ 1.10 \text { per mug } \
\text { Fixed production cost } & \$ 100,000 \text { per month } \
\text { Fixed selling and administrative cost } & \$ 60,000 \text { per month }
\end{array}$$ Production and sales in units for the first three months of 2014 are as follows: $\begin{array}{lll}\text { Year } &\text { Production }& \text { Sales }\
\hline \text { January } & 50,000 & 44,000 \
\text { February } & 40,000 & 45,000 \
\text { March } & 50,000 & 45,000
\end{array}$
Inventory at January 1, 2014 consisted of 1,000 mugs. How much is net income for February using full costing?

Question

Brislin Gifts makes ceramic mugs and has the following amounts during 2014 (Assume the same unit costs in all years): $$\begin{array} { l r } 
\text { Selling price } & \$ 9.00 \text { per mug } \
\text { Variable production cost } & \$ 2.50 \text { per mug } \
\text { Variable selling cost } & \$ 1.10 \text { per mug } \
\text { Fixed production cost } & \$ 100,000 \text { per month } \
\text { Fixed selling and administrative cost } & \$ 60,000 \text { per month }
\end{array}$$ Production and sales in units for the first three months of 2014 are as follows: $\begin{array}{lll}\text { Year } &\text { Production }& \text { Sales }\
\hline \text { January } & 50,000 & 44,000 \
\text { February } & 40,000 & 45,000 \
\text { March } & 50,000 & 45,000
\end{array}$
Inventory at January 1, 2014 consisted of 1,000 mugs. How much is net income for February using full costing?

Quizplus · Accepted Answer

Full costing includes fixed manufacturing costs as inventoriable costs. Thus, the cost of goods sold for February includes the variable manufacturing costs of $45,000 (45,000 units x $1.00) plus the fixed manufacturing costs of $100,000, or a total of $145,000. Net income is sales revenue of $405,000 (45,000 units x $9.00) minus cost of goods sold of $145,000 and variable selling and administrative expenses of $49,500 (45,000 units x $1.10), or $210,500. Subtracting fixed selling and administrative expenses of $60,000 results in net income of $150,500.

Brislin Gifts Makes Ceramic Mugs and Has the Following Amounts