Question

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 $950. Selected data for the company's operations last year follow: 230 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 125 335 55 30 $ 75,000 $ 15,000 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 $ 218,500 187,450 31,050 21,900 $ 9.150 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 inventory	6000	=75000/250*20
2
Variable costing Income Statement
Sales		218500
Variable expenses:
Variable cost of goods sold	118450		=230*(125+335+55)
Variable selling and administrative expenses	6900		=230*30
		125350
Contribution margin		93150
Fixed expenses:
Fixed manufacturing overhead	75000
Fixed selling and administrative expenses	15000
		90000
Net operating income		3150