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 $853. Selected data for the company’s operations last year follow:

  

Units in beginning inventory		0
Units produced		11,000
Units sold		8,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials		$     180
Direct labor		$     400
Variable manufacturing overhead		$      57
Variable selling and administrative		$      17
Fixed costs:
Fixed manufacturing overhead		$ 840,000
Fixed selling and administrative		$ 700,000

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 dollars.)

Unit Product Cost =

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

Unit Product Cost =

Answer 1

1)

Direct materials			$                              180
Direct Labor			$                              400
Variable manufacturing OH			$                                57
Fixed manufacturing OH / PU			$                                76
Absorption CPU			$                              713

(*)

Fixed manufacturing OH ÷ Units Produced

2)

Direct materials			$                              180
Direct Labor			$                              400
Variable manufacturing OH			$                                57
Variable CPU			$                              637

NOTE

The differences in net operating incomes of variable and absorption costing is ending inventory valuation.In ending valuation, fixed cost is considered under absorption costing. But under variable costing, fixed cost is not considered.