Figure 8-1 Armando Company Produces and Sells Mattresses

question 151

Multiple Choice

Figure 8-1 Armando Company produces and sells mattresses. It expects to sell 10,000 mattresses in the year 2015 and had 1,000 mattresses in finished goods inventory at the end of 2014. Armando would like to complete operations in the year 2015 with at least 1,250 completed mattresses in inventory. There is no ending work-in-process inventory. The mattresses sell for $300 each.
Refer to Figure 8-1. How many mattresses would be produced in the year 2015?

• A) 10,000 mattresses
• B) 11,000 mattresses
• C) 11,250 mattresses
• D) 10,250 mattresses

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Definitions:

Inventory Valuation

The method used to price inventory items on the balance sheet, impacting cost of goods sold and financial results.

Absorption Costing

Absorption costing is an accounting method that includes all the direct costs and overheads associated with producing a particular product in its cost base.

Fixed Cost

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.

Net Income

An entity's earnings after all expenses, including taxes and operating costs, have been deducted from revenues.