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 $862. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		11,000
Units sold		9,000
Units in ending inventory		2,000
Variable costs per unit:
Direct materials	$	270
Direct labor	$	360
Variable manufacturing overhead	$	45
Variable selling and administrative	$	25
Fixed costs:
Fixed manufacturing overhead	$	740,000
Fixed selling and administrative	$	650,000

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.

Answer 1

1) The unit product cost for one gamelan,under absorption costing is as follows:

Particular	$
Direct materials	270
Direct labor	360
Variable manufacturing overhead	45
Fixed manufacturing overhead ( $740,000 / 11,000 Units)	67
Unit product cost for one gamelan	$ 742

The unit product cost for one gamelan,under absorption costing is $ 742

2) The unit product cost for one gamelan,under variable costing is as follows:

Particular	$
Direct materials	270
Direct labor	360
Variable manufacturing overhead	45
Unit product cost for one gamelan	$ 675

The unit product cost for one gamelan,under variable costing is $ 675