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 $970. Selected data for the company's operations last year follow: 200 180 20 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 130 300 A GA GA GA 30 15 $ 63,000 $ 25,000 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 $ 174,609 139,500 35,100 27,700 $ 7,400 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year? Fixed manufacturing overhead cost included in inventory

Answer 1

Under abosorption Costing How Much Fixed Manaufacturing Cost is included in the Company ending Inventory = (63000/200)*20 6,300 460 174600 2) Assuming the Firm Using the Variable Cositng Variable Costing Calculation of Unit cost Under Variable Costing Unit Product Cost (130+300+30) Variable Costing income Statement Sales (180*970) LESS: Variable Expense Variable Cost of Goods Sold (180*460) Variable Selling and Administrative Expense(180*15) Total Varible Expenses Total Contribution Margin Less:Fixed Expenses Fixed manufacturing Overheads Fixed Selling and Administrative Expenses Total fixed Expenses Net operating income (loss) 82800 2700 85500 89100 63000 25000 88000 1100 Amount of the Diffence in Net operating income (7400-1100) 6,300