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 $801. Selected data for the company’s operations last year follow:

  

Units in beginning inventory		0
Units produced		14,000
Units sold		12,000
Units in ending inventory		2,000
Variable costs per unit:
Direct materials		$     190
Direct labor		$     390
Variable manufacturing overhead		$      51
Variable selling and administrative		$      16
Fixed costs:
Fixed manufacturing overhead		$ 840,000
Fixed selling and administrative		$ 770,000

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.)

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

Answer 1

1	Under Absorption Costing
	Unit product cost:
	Direct Material	$             190
	Direct Labour	$             390
	Variable Manufaturing overhead	$               51
	Total Variable Cost	$             631
	Fixed Manufacturing overhead ($840000 / 14000)	$               60
	Unit product cost	$             691
2	Under Variable Costing
	Unit product cost:
	Direct Material	$             190
	Direct Labour	$             390
	Varialble Manufaturing overhead	$               51
	Unit product cost	$             631