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 $769. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		13,000
Units sold		9,000
Units in ending inventory		4,000
Variable costs per unit:
Direct materials		$ 180
Direct labor		$ 340
Variable manufacturing overhead		$ 61
Variable selling and administrative		$ 22
Fixed costs:
Fixed manufacturing overhead		$ 620,000
Fixed selling and administrative		$ 680,000

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

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

Materials	180
Labor	340
Variable Manufacturing OH	61
Fixed MOH = 620000/13000	47.69
Unit product cost	628.69

Question - 2

Under variable costing approach.... product cost is determined @ of variable cost only.

Materials	180
Labor	340
Variable Manufacturing OH	61
Variable selling and adm	22
Unit product cost	603

Under variable costing approach.......... fixed costs are treated as period cost and not fixed cost.