Question

Ida Sidha Karya Company is a family-owned company located on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $871. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		25,000
Units sold		22,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials	$	230
Direct labor	$	440
Variable manufacturing overhead	$	54
Variable selling and administrative	$	23
Fixed costs:
Fixed manufacturing overhead	$	920,000
Fixed selling and administrative	$	510,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

1.

Unit product cost under absorption costing
Direct materials	230
Direct labor	440
Variable manufacturing overhead	54
Fixed manufacturing overhead (920,000/25,000)	37
Unit product cost	$761

2.

Unit product cost under Variable costing
Direct materials	230
Direct labor	440
Variable manufacturing overhead	54
Unit product cost	$724

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