Question

Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $914. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		19,000
Units sold		15,000
Units in ending inventory		4,000
Variable costs per unit:
Direct materials	$	270
Direct labor	$	410
Variable manufacturing overhead	$	62
Variable selling and administrative	$	20
Fixed costs:
Fixed manufacturing overhead	$	800,000
Fixed selling and administrative	$	780,000

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)

		Unit cost under absorption costing
Direct material	270
Direct labor	410
Variable manufacturing overhead	62
Fixed manufacturing overhead	42
Total unit cost		784

#Fixed manufacturing overhead per unit =Total fixed manufacturing overhead /units produced

                                               = 800000 / 19000

                                               = $ 42.11 (rounded to 42)

2)

		Unit cost under variable costing
Direct material	270
Direct labor	410
Variable manufacturing overhead	62
Total unit cost		742