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 $771. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 10,000 Units sold 8,000 Units in ending inventory 2,000 Variable costs per unit: Direct materials $ 160 Direct labor $ 380 Variable manufacturing overhead $ 61 Variable selling and administrative $ 16 Fixed costs: Fixed manufacturing overhead $ 700,000 Fixed selling and administrative $ 460,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. 2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

a	Income Statement under variable costing
			Working	Amount $
	Opening Inventory	a		0
	Unit produced	b		10000
	Unit Sold	c		8000
	Closing Inventory	d=a+b-c		2000
	Sales	e=c*$771		$        61,68,000
	Cost of good sold
	Opening Inventory	f
	Direct material	g=b*$160	$     16,00,000.00
	Direct Labour	h=b*$380	$     38,00,000.00
	Variable manufacturing OH	i=b*$61	$       6,10,000.00
	Cost of good manufactured	J=g+h+i	$    60,10,000.00
	Less : Closing Inventory	k=j/b*d	$     12,02,000.00
	Less: Cost of good sold	l=f+j-k		$        48,08,000
	Manufacturing Margin	m=e-l		$        13,60,000
	Variable Selling & Admin	n=c*$16		$          1,28,000
	Contribution Margin	o=m-n		$        12,32,000
	Less : Fixed expenses
	Fixed Manufacturing OH Cost	p		$     7,00,000.00
	Fixed marketing cost	q		$     4,60,000.00
	Net Operating Income/(loss)	r=o-p-q		$             72,000
b	Income Statement under absorption costing
			Working	Amount $
	Opening Inventory	a		0
	Unit produced	b		10000
	Unit Sold	c		8000
	Closing Inventory	d=a+b-c		2000
	Sales	e=c*$771		$        61,68,000
	Cost of good sold
	Opening Inventory	f	$                         -
	Direct material	g=b*$160	$     16,00,000.00
	Direct Labour	h=b*$380	$     38,00,000.00
	Variable manufacturing OH	i=b*$61	$       6,10,000.00
	Fixed Manufacturing OH Cost	j	$       7,00,000.00
	Cost of good manufactured	k=g+h+i+j	$    67,10,000.00
	Less : Closing Inventory	l=k/b*d	$     13,42,000.00
	Less: Cost of good sold	m=f+k-l		$        53,68,000
	Gross Profit	n=e-m		$          8,00,000
	Less : Selling expenses
	Variable Selling & Admin	o=c*$16		$          1,28,000
	Fixed marketing cost	p		$          4,60,000
	Net Operating Income/(loss)	q=n-o-p		$          2,12,000
		Variable	Absorption
	the unit product cost for one gamelan	601	671