Question

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 $894. Selected data for the company’s operations last year follow:

  

Units in beginning inventory		0
Units produced		23,000
Units sold		21,000
Units in ending inventory		2,000
Variable costs per unit:
Direct materials		$ 200
Direct labor		$ 480
Variable manufacturing overhead		$ 56
Variable selling and administrative		$ 16
Fixed costs:
Fixed manufacturing overhead		$ 650,000
Fixed selling and administrative		$ 420,000

  

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 nearest whole dollar.)

     

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

Answer 1

1.

Calculation of unit product cost Absorption Costing
Direct materials	200
Direct labor	480
Variable manufacturing overhead	56
Fixed manufacturing overhead per unit	28
Unit product cost	764

Total fixed manufacturing overhead = $650,000

Number of units produced = 23,000

Fixed manufacturing overhead per unit = Total fixed manufacturing overhead/Number of units produced

= 650,000/23,000

= $28

Unit product cost under absorption costing = $764

2.

Calculation of unit product cost Variable Costing
Direct materials	200
Direct labor	480
Variable manufacturing overhead	56
Unit product cost	$736

Unit product cost under variable costing = $736

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