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 $920. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 275 Units sold 260 Units in ending inventory 15 Variable costs per unit: Direct materials $ 110 Direct labor $ 320 Variable manufacturing overhead $ 40 Variable selling and administrative $ 15 Fixed costs: Fixed manufacturing overhead $ 77,000 Fixed selling and administrative $ 33,000 The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales $ 239,200 Cost of goods sold 195,000 Gross margin 44,200 Selling and administrative expense 36,900 Net operating income $ 7,300 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.

Answer 1

Requirement 1

Fixed manufacturing overhead included in Ending inventory is $4200

it is Calculated as

Fixed overhead per unit of Gamelan produced = $770000275 = $280

Fixed overhead included in Closing Stock of 15 Gamelan =15*280 =$4200

Requirement 2

Variable Income Statement of Ida Sidha Karya Company

Ida Sidha Karya Company

Contribution Margin = Sale-Variable expense =

Variable Costing Income Statement

Sales = 260*920 =		$        239,200
Variable Expenses
Variable Cost of Goods Sold = 260*470=	$     122,200
Variable Selling and Administrative Expense = 260*15=	$          3,900
Total Variable Expense		$        126,100
Contribution Margin = Sale-Variable expense =		$        113,100
Fixed Expenses
Fixed manufacturing overhead	$        77,000
Fixed selling and administrative expense	$        33,000
Total Fixed Expenses		$        110,000
Net operating income		$            3,100

Above statement is based on following calculations

Calculation of per unit Variable Cost of Goods sold
Direct Material Per unit		$                110
Direct Labor Per unit		$                320
Variable Manufacturing overhead		$                  40
Variable Cost of Goods sold Per unit		$                470

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