The total cost that would be assigned to Mediocre's finished goods inventory at the end of the first year of operations under the absorption costing method is $139,125.The correct option is E. None of the above.
To calculate the total cost that would be assigned to Mediocre's finished goods inventory at the end of the first year of operations under the absorption costing method, we need to consider the variable and fixed manufacturing overhead costs.
The budgeted manufacturing overhead for 4,000 units is $63,000, and the actual production was 4,000 units. Therefore, the budgeted manufacturing overhead per unit is $63,000 / 4,000 = $15.75 per unit.
The fixed manufacturing overhead is not allocated to units but is included in the total cost of inventory.
For the 3,500 units sold, the variable manufacturing overhead cost is calculated as $15.75 per unit * 3,500 units = $55,125.
The fixed manufacturing overhead cost is not assigned to the units sold but remains in the finished goods inventory.
So, the total cost assigned to Mediocre's finished goods inventory at the end of the first year is the sum of the direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead costs.
Total cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
Total cost = $28,000 + $14,000 + $55,125 + $42,000
Total cost = $139,125
Therefore, the total cost that would be assigned to Mediocre's finished goods inventory at the end of the first year of operations under the absorption costing method is $139,125.
The correct option is E. None of the above.