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 $990. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		200
Units sold		180
Units in ending inventory		20
Variable costs per unit:
Direct materials	$	120
Direct labor	$	340
Variable manufacturing overhead	$	40
Variable selling and administrative	$	30
Fixed costs:
Fixed manufacturing overhead	$	56,000
Fixed selling and administrative	$	24,000

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Sales	$	178,200
Cost of goods sold		140,400
Gross margin		37,800
Selling and administrative expense		29,400
Net operating income	$	8,400

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.

Answer 1

Requirement 1

Fixed manufacturing overheads included in ending inventory in Absorbtion costing (20 x 280)

$        5,600.00

Working

Fixed manufacturing overheads	$      56,000.00
Units produced	200
Fixed manufacturing overheads per unit (77000/275)	$                  280
Fixed manufacturing overheads included in ending inventory in Absorbtion costing (20 x 280)	$        5,600.00

Requirement 2

Ida Sidha Karya Company
Variable costing income statement
Sales		$   178,200.00
Variable Cost
Variable cost of Goods Sold	$      90,000.00
Variable Selling & administrative	$        5,400.00
Total variable cost		$      95,400.00
Contribution margin		$      82,800.00
Fixed Costs:
Fixed Cost of Goods Sold	$      56,000.00
Fixed Selling & Administrative	$      24,000.00
Total Fixed Cost		$      80,000.00
Net Income		$        2,800.00