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 $870. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		260
Units sold		230
Units in ending inventory		30
Variable costs per unit:
Direct materials	$	105
Direct labor	$	325
Variable manufacturing overhead	$	45
Variable selling and administrative	$	15
Fixed costs:
Fixed manufacturing overhead	$	65,000
Fixed selling and administrative	$	21,000

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Sales	$	200,100
Cost of goods sold		166,750
Gross margin		33,350
Selling and administrative expense		24,450
Net operating income	$	8,900

Required:

1.	Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

       

2.	Prepare an income statement for the year using variable costing.

       

Answer 1

fixed MOH overhead cost per unit =				65,000/260
				250
		Deferred =		30*250
				7500
total fixed manufacturing overhead in ending inventory						$7,500
		Variable costing income statement
	sales					200,100
	less:Variable expense
	Variable cost of goods sold (230*475)				109250
	Variable selling & adm expense(230*15)				3450	112700
	Contribution margin					87,400
	Fixed expenses:
	fixed manufacturing overhead				65,000
	fixed selling & adm expense				21,000	86,000
	Net income					1,400
	or if individual items are to be filled for variable expense then use
	this format
		Variable costing income statement
	sales					200,100
	less:Variable expense
	Direct materials (230*105)				24,150
	direct labor (230*325)				74750
	Variable MOH (230*45)				10350
	Variable selling & adm expense(230*15)				3450	112700
	Contribution margin					87,400
	Fixed expenses:
	fixed manufacturing overhead				65,000
	fixed selling & adm expense				21,000	86,000
	Net income					1,400