Question

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the...

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 310
Units sold 280
Units in ending inventory 30
Variable costs per unit:
Direct materials $ 130
Direct labor $ 350
Variable manufacturing overhead $ 50
Variable selling and administrative $ 40
Fixed costs:
Fixed manufacturing overhead $ 62,000
Fixed selling and administrative $ 26,000

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

Sales $ 254,800
Cost of goods sold 204,400
Gross margin 50,400
Selling and administrative expense 37,200
Net operating income $ 13,200

Required:

1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

2. Prepare an income statement for the year using variable costing.

Ida Sidha Karya Company
Variable Costing Income Statement
Variable expenses:
Fixed expenses:

Homework Answers

Answer #1

1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Fixed manufacturing overhead cost deferred in inventory = 62000/310*30 = 6000

2. Prepare an income statement for the year using variable costing.

Sales (910*280) 254800
Less: Variable expense
Direct material 36400
Direct labour 98000
Variable manufacturing overhead 14000
Variable selling and administrative 11200
Total variable expense 159600
Contribution margin 95200
Fixed cost
Fixed manufacturing overhead 62000
Fixed selling and administrative 26000
Total fixed cost 88000
Net operating income 7200
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