Question

Ida Sidha Karya Company is a family-owned company located on the island of Bali in Indonesia....

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 $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. 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.

Homework Answers

Answer #1

1) Fixed manufacturing overhead cost included in ending inventory = 70000/280*15 = $3750

2) Income statement

Sales 259700
Less; Variable cost of goods sold
Direct material (265*150) 39750
Direct labor (265*370) 98050
variable manufacturing overhead 11925
Total variable cost of goods sold 149725
Manufacturing margin 109975
variable selling and administrative expense 7950
Contribution margin 102025
Fixed cost
Fixed manufacturing cost 70000
Fixed selling and administrative expense 30000
Total fixed cost 100000
Net operating income 2025
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