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 $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

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

2. What is the amount of the difference in net operating income between the two costing methods?

Answer 1