Question

ch6 exer 5

Ida Sidha Karya Company is a family-owned company located in the village of Glanyar 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 $838. Selected data for the company’s operations last year follow:

  

Units in beginning inventory		0
Units produced		22,000
Units sold		20,000
Units in ending inventory		2,000
Variable costs per unit:
Direct materials		$ 280
Direct labor		$ 330
Variable manufacturing overhead		$ 48
Variable selling and administrative		$ 18
Fixed costs:
Fixed manufacturing overhead		$ 890,000
Fixed selling and administrative		$ 530,000

  

Required:

a.	Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to nearest whole dollar.)

b. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

Solution:
	Absorption costing
a.	Unit product cost                              $	698
Working Notes:
	Under Absorption costing , both variable & fixed are included in unit product cost.
	Direct materials	280
	Direct labor	330
	Variable manufacturing overhead	48
	Fixed manufacturing overhead	40
	[($890,00 /22,000) = $40.45
	Absorption costing unit product cost	698
	Variable costing
b.	Unit product cost                              $	658
Working Notes:
	Under Variable costing , only variable manufacturing are included in unit product cost.
	Direct materials	280
	Direct labor	330
	Variable manufacturing overhead	48
	Variable costing unit product cost	658
Notes:	Under Absorption costing & variable costing , selling & administrative cost fixed & variable are not part of product cost.
Please feel free to ask if anything about above solution in comment section of the question.