Question

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar 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 $844. Selected data for the company’s operations last year follow:

  

Units in beginning inventory		0
Units produced		20,000
Units sold		16,000
Units in ending inventory		4,000
Variable costs per unit:
Direct materials		$ 180
Direct labor		$ 450
Variable manufacturing overhead		$ 49
Variable selling and administrative		$ 21
Fixed costs:
Fixed manufacturing overhead		$ 890,000
Fixed selling and administrative		$ 960,000

  

Required:

1.	Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.

     

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

     

Answer 1

Answer:- 1-)-Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$890000/20000 units =$44.50 per unit

Unit product cost under Absorption costing for on gamelan:-Direct materials + Direct Labor+Variable manufacturing overhead + fixed manufacturing overhead

=$180+$450+$49+$44.50 = $723.50 per unit

2-)-Unit product cost under variable costing for one gamelan:-Direct materials + Direct Labor+Variable manufacturing overhead

=$180+$450+$49 = $679 per unit