Question

Bharat Bicycle, located in India, produces an inexpensive yet rugged bicycle for use on crowded city streets. The company sells the bicycle for 598 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		19,200
Units sold		17,900
Units in ending inventory		1,300
Variable costs per unit:
Direct materials	R	153
Direct labour	R	237
Variable manufacturing overhead	R	68
Variable selling and administrative	R	49
Fixed costs:
Fixed manufacturing overhead	R	921,600
Fixed selling and administrative	R	614,400

An absorption costing income statement prepared by the company’s accountant appears below:

Sales (17,900 units × R598 per unit)				R	10,704,200
Cost of goods sold:
Beginning inventory	R	0
Add cost of goods manufactured         (19,200 units × R   ?   per unit)		9,715,200
Goods available for sale		9,715,200
Less ending inventory         (1,300 units × R   ?   per unit)		657,800			9,057,400
Gross margin					1,646,800
Selling and administrative expenses:
Variable selling and administrative		877,100
Fixed selling and administrative		614,400			1,491,500
Operating income				R	155,300

Required:

1.	Determine how much of the ending inventory of R657,800 above consists of fixed manufacturing overhead cost deferred in inventory to the next period.

      

2.	Prepare an income statement for the year using the variable costing method.

      

Answer 1