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

Question

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

Quizplus · Accepted Answer

Under full costing, the inventory cost per unit includes both variable and fixed production costs. The variable production cost is $2.50 per mug. The fixed production cost per unit is calculated by dividing the total fixed production cost by the total units produced in March. Total fixed production cost is $100,000, and total units produced in March is 50,000, so the fixed cost per unit is $2.00 ($100,000 / 50,000). Therefore, the inventory cost per unit is $2.50 (variable) + $2.00 (fixed) = $4.50.

Brislin Gifts Makes Ceramic Mugs and Has the Following Amounts