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

1
Fixed manufacturing overhead in inventory	6900		=69000*30/300
2
Ida Sidha Karya Company
Variable Costing Income Statement
Sales		245700	=270*910
Variable expenses:
Variable cost of goods sold	141750		=270*(140+350+35)
Variable selling and administrative expense	4050		=270*15
		145800
Contribution margin		99900
Fixed expenses:
Fixed manufacturing overhead	69000
Fixed selling and administrative expense	26000
		95000
Net operating income		4900