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 $832. Selected data for the company’s operations last year follow:

Units in beginning inventory 0

Units produced 17,000

Units sold 13,000

Units in ending inventory 4,000

Variable costs per unit:

Direct materials $ 100

Direct labor $ 500

Variable manufacturing overhead $ 64

Variable selling and administrative $ 20

Fixed costs:

Fixed manufacturing overhead $ 820,000

Fixed selling and administrative $ 920,000

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

1. Unit product as per Absorption Costing
Particulars	Amount ($)
Direct Materials	100
Direct labor	500
Variable Manufacturing OHs	64
Fixed manufacturing OHs	48.235294	(820,000 $ / 17,000 units produced)
Unit product cost	712.23529
2. Unit product as per Variable Costing
Particulars	Amount ($)
Direct Materials	100
Direct labor	500
Variable Manufacturing OHs	64
Unit product cost	664
Abosrption Costing vs Variable costing : The basic difference is that in aborption costing we take both variable and fixed manufacturing overheads in unit product cost whereas in varibale costing, we take only variable manufacturing overheads.