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 $880. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 280 Units sold 240 Units in ending inventory 40 Variable costs per unit: Direct materials $ 115 Direct labor $ 335 Variable manufacturing overhead $ 35 Variable selling and administrative $ 25 Fixed costs: Fixed manufacturing overhead $ 63,000 Fixed selling and administrative $ 23,000 The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales $ 211,200 Cost of goods sold 170,400 Gross margin 40,800 Selling and administrative expense 29,000 Net operating income $ 11,800 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

fixed MOH overhead cost per unit =				63000/280
				225
		Deferred =		40*225
				9000
total fixed manufacturing overhead in ending inventory						$9,000
		Variable costing income statement
	sales					211,200
	less:Variable expense
	Variable cost of goods sold (240*485)				116400
	Variable selling & adm expense(240*25)				6000	122400
	Contribution margin					88,800
	Fixed expenses:
	fixed manufacturing overhead				63,000
	fixed selling & adm expense				23,000	86,000
	Net income					2,800
	or if individual items are to be filled for variable expense then use
	this format
		Variable costing income statement
	sales					211,200
	less:Variable expense
	Direct materials				27,600
	direct labor				80400
	Variable MOH				8400
	Variable selling & adm expense				6000	122400
	Contribution margin					88,800
	Fixed expenses:
	fixed manufacturing overhead				63,000
	fixed selling & adm expense				23,000	86,000
	Net income					2,800