Question

Exercise 6-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO6-2] 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 $990. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 200 Units sold 180 Units in ending inventory 20 Variable costs per unit: Direct materials $ 120 Direct labor $ 340 Variable manufacturing overhead $ 40 Variable selling and administrative $ 30 Fixed costs: Fixed manufacturing overhead $ 56,000 Fixed selling and administrative $ 24,000 The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales $ 178,200 Cost of goods sold 140,400 Gross margin 37,800 Selling and administrative expense 29,400 Net operating income $ 8,400 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.

Required 1

Required 2

Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

Fixed manufacturing overhead cost included in inventory

Required 1

Required 2

Prepare an income statement for last year using variable costing.

Ida Sidha Karya Company
Variable Costing Income Statement

Required 1

Answer 1

1
Fixed manufacturing overhead cost included in inventory = 56000/200*20= $5600
Sales		178200
Variable expenses:
Variable cost of goods sold	90000
Variable selling and administrative expenses	5400
Total Variable expenses		95400
Contribution margin		82800
Fixed expenses:
Fixed manufacturing overhead	56000
Fixed selling and administrative expenses	24000
Total Fixed expenses		80000
Net operating income(loss)		2800