Question

Ida Sidha Karya Company is a family-owned company located 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 $841. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		14,000
Units sold		11,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials	$	120
Direct labor	$	480
Variable manufacturing overhead	$	55
Variable selling and administrative	$	21
Fixed costs:
Fixed manufacturing overhead	$	650,000
Fixed selling and administrative	$	400,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

Requirement 1:

Unit product cost under Absorption costing

Particulars	$
Direct Materials per unit	120.00
Direct Labor per unit	480.00
Variable manufacturing cost per unit	55.00
Fixed manufacturing cost per unit ($650,000 / 14,000 Units)	46.43
Total Unit Product cost	701.43

Unit product cost under Absorption costing for one gamelan = $701

Requirement 2:

Unit product cost under Variable costing

Particulars	$
Direct Materials per unit	120.00
Direct Labor per unit	480.00
Variable manufacturing cost per unit	55.00
Total Unit Product cost	655.00

Unit product cost under variable costing for one gamelan = $655

All the best...