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 $832. Selected data for the company’s operations last year follow:
Units in beginning inventory | 0 | |
Units produced | 23,000 | |
Units sold | 20,000 | |
Units in ending inventory | 3,000 | |
Variable costs per unit: | ||
Direct materials | $ | 180 |
Direct labor | $ | 430 |
Variable manufacturing overhead | $ | 48 |
Variable selling and administrative | $ | 19 |
Fixed costs: | ||
Fixed manufacturing overhead | $ | 780,000 |
Fixed selling and administrative | $ | 540,000 |
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.
1.) The unit product cost for one gamelan under Absorption costing can be calculated as follows:-
Absorption Costing | |
Particulars | Cost per unit |
Direct Materials | 180 |
Direct Labor | 430 |
Variable Manufacturing overhead | 48 |
Fixed Manufacturing Overhead | 33.91 |
(780,000/23,000) | |
Absorption Cost per unit | $691.91 |
Rounding off to the nearest dollar, the Unit product cost for one gamelan under Absorption costing is $692.
2.) The unit product cost for one gamelan under Variable costing can be calculated as follows:-
Variable Costing | |
Particulars | Cost per unit |
Direct Materials | 180 |
Direct Labor | 430 |
Variable Manufacturing overhead | 48 |
Absorption Cost per unit | $658 |
The Unit product cost for one gamelan under the Variable costing method is $658.
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