Question

Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $910. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		310
Units sold		280
Units in ending inventory		30
Variable costs per unit:
Direct materials	$	130
Direct labor	$	350
Variable manufacturing overhead	$	50
Variable selling and administrative	$	40
Fixed costs:
Fixed manufacturing overhead	$	62,000
Fixed selling and administrative	$	26,000

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

Sales	$	254,800
Cost of goods sold		204,400
Gross margin		50,400
Selling and administrative expense		37,200
Net operating income	$	13,200

Required:

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

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

Answer 1

1.
Fixed Manufacturing Overhead per unit = $62000 / 310 = $200 per unit
Overhea cost in ending inventory = 30 x $200 = $6000

2.

Sales		$         254,800
Less : Variable Costs
Cost of Goods Sold
Beginning Inventory	$                    -
Plus Cost of Goods Manufactured	$         164,300
Cost of Goods Available for sale	$         164,300
Less Ending Inventory	$           15,900
Cost of Goods Sold		$         148,400
Manufacturing Margin		$         106,400
Variable Selling and administrative		$           11,200
Contribution Margin		$           95,200
Less : Fixed Costs
Fixed Manufacturing OH	$           62,000
Fixed Selling and administrative	$           26,000
Total Fixed Costs		$           88,000
Operating Income		$             7,200

Items listed may vary as per format provided, i have used general format