Question

Exercise 7-1 Variable and Absorption Costing Unit Product Costs (L07-13 Ida Sidha Karya Company is a family-owned company located on the island of Ball in Indonesia. The company produces a handcrafted Balinese musical Instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $726. Selected data for the company's operations last year follow: 21,000 18,000 3,000 Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unitt Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costat Fixed manufacturing overhead Fixed selling and administrative $ $ 160 350 20 $900,000 $630,000 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. 1. Absorption costing unit product cost 2. Variable costing unit product cost

Answer 1

Solution

1	Absorption costing Unit Product Cost	$           616
2	Variable costing unit product cost	$           573

Working

Absorption costing unit product cost
Direct material	$      160.00
Direct labor	$      350.00
Variable Manufacturing overhead	$        63.00
Fixed manufacturing overhead (900000/21000)	$        42.86
Absorption costing Unit Product Cost	$      615.86

.

Variable costing Unit Product cost
Direct material	$            160
Direct labor	$            350
Variable Manufacturing overhead	$              63
Variable costing unit product cost	$            573