Leesburg Bags produces backpacks.The costs and prices for the backpacks follow (Assume the same unit costs in all years): $$\begin{array} { l r }
\text { Selling price } & \$ 23.00 \text { per backpack } \
\text { Variable costs: } & \
\text { Production } & \$ 11.00 \text { per backpack } \
\text { Selling } & \$ 2.00 \text { per backpack } \
\text { Fixed Costs: } & \
\text { Production } & \$ 900,000 \text { per year } \
\text { Selling and administrative } & \$ 540,000 \text { per year }
\end{array}$$ Leesburg Bags produced 250,000 backpacks for the year and sold 200,000.There was no beginning inventory, and costs throughout the year were stable.How much is the cost of ending inventory under full costing?

Question

Leesburg Bags produces backpacks.The costs and prices for the backpacks follow (Assume the same unit costs in all years): $$\begin{array} { l r } 
\text { Selling price } & \$ 23.00 \text { per backpack } \
\text { Variable costs: } & \
\text { Production } & \$ 11.00 \text { per backpack } \
\text { Selling } & \$ 2.00 \text { per backpack } \
\text { Fixed Costs: } & \
\text { Production } & \$ 900,000 \text { per year } \
\text { Selling and administrative } & \$ 540,000 \text { per year }
\end{array}$$ Leesburg Bags produced 250,000 backpacks for the year and sold 200,000.There was no beginning inventory, and costs throughout the year were stable.How much is the cost of ending inventory under full costing?

Quizplus · Accepted Answer

Under full costing, both variable and fixed production costs are included in inventory costs. The cost per backpack is calculated as follows: Variable production cost per backpack = $11 Fixed production costs = $900,000 Total production = 250,000 backpacks Fixed production cost per backpack = $900,000 / 250,000 = $3.60 Total cost per backpack = $11 (variable) + $3.60 (fixed) = $14.60 Ending inventory = 250,000 produced - 200,000 sold = 50,000 backpacks Cost of ending inventory = 50,000 backpacks * $14.60 per backpack = $730,000

Leesburg Bags Produces Backpacks Leesburg Bags Produced 250,000 Backpacks for the Year and Sold