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 $837. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		19,000
Units sold		16,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials	$	180
Direct labor	$	440
Variable manufacturing overhead	$	55
Variable selling and administrative	$	19
Fixed costs:
Fixed manufacturing overhead	$	790,000
Fixed selling and administrative	$	980,000

Required:

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

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

Answer 1

1. Absorption costing unit product cost                  [Refer working note]	$717
2. Variable costing unit product cost                      [Refer working note]	$675
Working note - Calculation of unit product cost
	Absorption costing	Variable costing
Direct material per unit                                                                                                                              (a)	$180	$180
Direct labor per unit                                                                                                                                   (b)	$440	$440
Variable manufacturing overhead per unit                                                                                                  (c)	$55	$55
Fixed manufacturing overhead per unit                                                                                                        (d)                                                                         [Fixed manufacturing overhead ÷ Number of units produced = $790,000 ÷ 19,000 units]	$42 (rounded to 0 decimals)	0
Total Cost per unit                                                                                                                         (a + b + c + d)	$717	$675