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 $1,036. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 20,000 Units sold 18,000 Units in ending inventory 2,000 Variable costs per unit: Direct materials $ 290 Direct labor $ 520 Variable manufacturing overhead $ 63 Variable selling and administrative $ 22 Fixed costs: Fixed manufacturing overhead $ 850,000 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

Answer 1.
Calculation of Cost per Unit
Under Absorption Costing
	20,000 Units Manufactured
Direct Material	290.00
Direct Labor	520.00
Variable Manufacturing Overhead	63.00
Fixed Manufacturing Overhead - $850,000 / 20,000 Units	42.50
Total Cost per Unit	915.50
Note: Selling and administrative expenses (both variable and fixed) are not relevant for the computation of unit product cost in both absorption costing & variable costing.
Answer 2.
Calculation of Cost per Unit
Under Variable Costing
	20,000 Units Manufactured
Direct Material	290.00
Direct Labor	520.00
Variable Manufacturing Overhead	63.00
Total Cost per Unit	873.00