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 $850. Selected data for the company's operations last year follow: 250 225 25 Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative 100 320 40 20 $ $ 60,000 $ 20,000 The absorption costing income statement prepared by the company's accountant for last year appears below: Sales Cost of goods sold Gross margin Selling and administrative expense Net operating income $ 191, 250 157,500 33,750 24,500 $ 9,250 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 cost included in ending inventory = 60000/250*25 = 6000

2) Income statement

Sales (		191250
Less: Variable cost
Variable cost of goods sold (460*225)	103500
Variable selling and administrative expense	4500	108000
Contribution margin		83250
Less: Fixed cost
Fixed manufacturing overhead	60000
Fixed selling and administrative expense	20000	80000
Net operating income		3250