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 $970. Selected data for the company’s operations last year follow:

Units in beginning inventory 0 Units produced 200 Units sold 180 Units in ending inventory 20 Variable costs per unit: Direct materials $ 130 Direct labor $ 300 Variable manufacturing overhead $ 30 Variable selling and administrative $ 15 Fixed costs: Fixed manufacturing overhead $ 63,000 Fixed selling and administrative $ 25,000 The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales $ 174,600 Cost of goods sold 139,500 Gross margin 35,100 Selling and administrative expense 27,700 Net operating income $ 7,400

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

Solution 1:

Unit produced = 200

Fixed manufacturing overhead = $63,000

Fixed manufacturing overhead per unit = $63,000 / 200 = $315 per unit

Closing inventory = 20 units

Fixed manufacturing overhead cost included in company's inventory = 315*20 = $6,300

Solution 2:

Variable Costing Income Statement - Ida Sidha Karya Company
Particulars	Per Unit	Total
Sales	$970.00	$174,600.00
Variable Cost:
Direct Material	$130.00	$23,400.00
Direct Labor	$300.00	$54,000.00
Variable manufacturing overhead	$30.00	$5,400.00
Variable Selling and administrative expense	$15.00	$2,700.00
Contribution	$495.00	$89,100.00
Fixed Cost:
Fixed Manufacturing Overhead		$63,000.00
Fixed Selling and administrative expense		$25,000.00
Net Operating Income		$1,100.00