Brislin Gifts makes ceramic mugs and has the following amounts during 2017 (Assume the same unit costs in all years): $\begin{array}{lr}
\text { Selling price } & \$ 9.00 \text { per mug } \
\text { Variable production cost } & \$ 2.50 \text { per mug } \
\text { Variable selling cost } & \$ 1.10 \text { per mug } \
\text { Fixed production cost } & \$ 100,000 \text { per month }\
\text { Fixed selling and administrative cost }& \$ 60,000 \text { per month }\
\end{array}$
$\text { Production and sales in units for the first three months of } 2017 \text { are as follows: }$

$\begin{array}{lll}\text { Year}&\text { Production}&\text { Sales }\
\text { January } & 50,000 & 44,000 \
\text { February } & 40,000 & 45,000 \
\text { March } & 44,000 & 46,000
\end{array}$ Inventory at January 1, 2017 consisted of 1,000 mugs.During which months will ending inventory be the same if variable costing is used?

Question

Brislin Gifts makes ceramic mugs and has the following amounts during 2017 (Assume the same unit costs in all years): $\begin{array}{lr}
\text { Selling price } & \$ 9.00 \text { per mug } \
\text { Variable production cost } & \$ 2.50 \text { per mug } \
\text { Variable selling cost } & \$ 1.10 \text { per mug } \
\text { Fixed production cost } & \$ 100,000 \text { per month }\
\text { Fixed selling and administrative cost }& \$ 60,000 \text { per month }\
\end{array}$
$\text { Production and sales in units for the first three months of } 2017 \text { are as follows: }$

$\begin{array}{lll}\text { Year}&\text {  Production}&\text { Sales }\
\text { January } & 50,000 & 44,000 \
\text { February } & 40,000 & 45,000 \
\text { March } & 44,000 & 46,000
\end{array}$ Inventory at January 1, 2017 consisted of 1,000 mugs.During which months will ending inventory be the same if variable costing is used?

Quizplus · Accepted Answer

Under variable costing, ending inventory is calculated based on production minus sales. For January, ending inventory is 50,000 - 44,000 + 1,000 = 7,000 mugs. For March, ending inventory is 44,000 - 46,000 + 6,000 (February's ending inventory) = 4,000 mugs. Therefore, January and March have the same ending inventory of 7,000 mugs.

Brislin Gifts Makes Ceramic Mugs and Has the Following Amounts