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 $910. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		300
Units sold		270
Units in ending inventory		30
Variable costs per unit:
Direct materials	$	140
Direct labor	$	350
Variable manufacturing overhead	$	35
Variable selling and administrative	$	15
Fixed costs:
Fixed manufacturing overhead	$	69,000
Fixed selling and administrative	$	26,000

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Sales	$	245,700
Cost of goods sold		203,850
Gross margin		41,850
Selling and administrative expense		30,050
Net operating income	$	11,800

Required:

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

2. Prepare an income statement for last year using variable costing.

Answer 1

Total Fixed manufacturing overheads				69000
Divide: Units produced				300
Fixed Manufacturing OH per unint				230
Multiply: Nnumber of units in ending inventory				30
Fixed manufacturing oh included in Inventory				6900
Income Statement:
Sales revennue					245700
Less: variable cost of goods sold (140+350+35)*270					141750
Less: Variable selling admin expense (15*270)					4050
Contribution					99900
Less: Fixed cost
Fixed manufacturing Oh				69000
Fixed Selling admin oh				26000
Total fixed cost					95000
Net income					4900