Question

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Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 945 rupees. (Indian currency is denominated in rupees, denoted by

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

Units in beginning inventory		0
Units produced		14,000
Units sold		3,000
Units in ending inventory		11,000
Variable costs per unit:
Direct materials		91
Direct labor		303
Variable manufacturing overhead		23
Variable selling and administrative		17
Fixed costs:
Fixed manufacturing overhead		616,000
Fixed selling and administrative		408,000

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

Sales		2,835,000
Cost of goods sold		1,383,000
Gross margin		1,452,000
Selling and administrative expense		459,000
Net operating income		993,000

Required:

1.	Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the " " sign in your response.)

Total fixed manufacturing overhead in ending inventory

Answer 1

Fixed manufacturing overhead per unit = Fixed manufacturing overhead / Units produced
Fixed manufacturing overhead per unit = Rs. 616,000 / 14,000
Fixed manufacturing overhead per unit = Rs. 44

Fixed manufacturing overhead deferred in ending inventory = Fixed manufacturing overhead per unit * Units in ending inventory
Fixed manufacturing overhead deferred in ending inventory = Rs. 44 * 11,000
Fixed manufacturing overhead deferred in ending inventory = Rs. 484,000