Question

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

Ida Sidha Karya Company is a family-owned company located in the village of Glanyar 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 $980. Selected data for the company’s operations last year follow:

  Units in beginning inventory 0
  Units produced 280
  Units sold 265
  Units in ending inventory 15
  Variable costs per unit:
       Direct materials $ 150  
       Direct labor $ 370  
       Variable manufacturing overhead $ 45  
       Variable selling and administrative $ 30  
  Fixed costs:
       Fixed manufacturing overhead $ 70,000  
       Fixed selling and administrative $

30,000  

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

  Sales $ 259,700
  Cost of goods sold 215,975
  Gross margin 43,725
  Selling and administrative expense 37,950
  Net operating income $ 5,775
Required:
1.

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

Total fixed manufacturing overhead in ending inventory

       

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.

Total fixed manufacturing overhead in ending inventory = (70000/280)*15 = 3750

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

Ida Sidha Karya Company
Variable Costing Income Statement
Sales 259700
Variable expenses:
Direct material (150*265) (39750)
Direct labour (370*265) (98050)
Variable manufacturing overhead (45*265) (11925)
Variable selling and administrative exp (30*265) (7950) (157675)
Contribution margin 102025
Fixed expenses:
Fixed manufacturing overhead (70000)
Fixed selling and administrative (30000) (100000)
Net operating income 2025
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