Question

PLEASE ANSWER ALL PARTS OF THE QUESTION. ALL PARTS GO WITH THE INFORMATION PROVIDED

Ida Sidha Karya Company is a family-owned company located 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 $880. Selected data for the company's operations last year follow: 105 A 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 315 A A 40 A $ 63,000 $ 32,000 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 $ 224,400 173,400 51,000 42,200 $ 8,800 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. What is the amount of the difference in net operating income between the two costing methods?

Answer 1

Calculation of fixed manufacturing overhead cost is included in the companys inventory at the end of last year 1) =Fixed Overhead Rate * units in ending inventory Fixed overhead rate Fixed manufacturing overhead / units produced -63000/280 225 =225*25 5,625 Ida Sidha karya Company 2) Variable Costing Income statement Sales $224,400 Variable Expenses Variable Cost of goods sold Variable Selling and administrative Expenses $116,025 (105+315+35)*255 (40*255) 10,200 $126,225 Contribution Margin Fixed Expenses Fixed Manufacturing Overhead Fixed Selling and administrative S98,175 $63.000 32,000 S 95,000 S 3,175 (98175-95000) Net Operating Income 3) (8800-3175) Amount of difference in Net Operating Income = $5625