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 $795. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		13,000
Units sold		10,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials	$	150
Direct labor	$	390
Variable manufacturing overhead	$	59
Variable selling and administrative	$	18
Fixed costs:
Fixed manufacturing overhead	$	730,000
Fixed selling and administrative	$	920,000

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 the nearest whole dollar amount.)

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

1.	Absorption costing unit product cost
2.	Variable costing unit product cost

Answer 1

1	Absorption Costing Unit Product Cost	$                       655
2	Variable Costing Unit Product Cost	$                       599

Working:

1. Compute the product cost per unit using absorption costing and variable costing
Cost per unit of finished goods using:	Variable Costing	Absorption Costing
Direct Materials	$                       150	$                             150
Direct labor	$                       390	$                             390
Variable Overhead	$                         59	$                               59
Fixed Overhead [730000/13000]	$                          -	$                               56
Cost per unit of finished goods	$                       599	$                             655