Aerotrino Produces and Sells Popular T-Shirts During 2014, the Company Produced 400,000 T-Shirts and Sold 350,000

question 23

Multiple Choice

Aerotrino produces and sells popular t-shirts. Following is information about its t-shirts for 2014: $\begin{array}{ll}\text { Selling price }& \$ 15.00 \text { per } t \text {-shirt } \\\text { Variable costs: }\\\text { Production (manufacturing costs) } & \$ 3.00 \text { per } t \text {-shirt } \\\text { Selling \& administration } & \$ 1.00 \text { per } t \text {-shirt }\\\text { Fixed costs: }\\\text { Production (manufacturing costs) } & \$ 1,000,000 \text { per year } \\\text { Selling \& administration } & \$ 2,000,000 \text { per year }\end{array}$ During 2014, the company produced 400,000 t-shirts and sold 350,000 of them. Assume that there was no beginning inventory. How much is the net income under variable costing?

• A) $975,000
• B) $1,400,000
• C) $850,000
• D) $2,250,000

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Definitions:

Budget

A financial plan that estimates income and expenditure for a specific period of time.

Equivalent Units

A concept used in process costing that converts partially completed units into a number of fully completed units, facilitating cost calculation.

Material Price Variance

A calculation that measures the difference between the actual cost of materials and the standard cost multiplied by the quantity purchased.

Purchased Quantity (PQ)

The total amount of a specific item that a company acquires from suppliers within a given time period, used for inventory management and cost control.