Question

Exercise 4-2 (Algo) Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO4-2] 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 $900. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 300 Units sold 275 Units in ending inventory 25 Variable costs per unit: Direct materials $ 125 Direct labor $ 345 Variable manufacturing overhead $ 45 Variable selling and administrative $ 35 Fixed costs: Fixed manufacturing overhead $ 63,000 Fixed selling and administrative $ 25,000 The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales $ 247,500 Cost of goods sold 199,375 Gross margin 48,125 Selling and administrative expense 34,625 Net operating income $ 13,500 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

fixed MOH overhead cost per unit =				63000/300
				210
		Deferred =		210*25
				5250
total fixed manufacturing overhead in ending inventory						$5,250
		Variable costing income statement
	sales					247,500
	less:Variable expense
	Variable cost of goods sold (275*515)				141625
	Variable selling & adm expense(275*35)				9625	151250
	Contribution margin					96,250
	Fixed expenses:
	fixed manufacturing overhead				63,000
	fixed selling & adm expense				25,000	88,000
	Net income					8,250
	or if individual items are to be filled for variable expense then use
	this format
		Variable costing income statement
	sales					247,500
	less:Variable expense
	Direct materials (275*125)				34,375
	direct labor (275*345)				94875
	Variable MOH (275*45)				12375
	Variable selling & adm expense				9625	151250
	Contribution margin					96,250
	Fixed expenses:
	fixed manufacturing overhead				63,000
	fixed selling & adm expense				25,000	88,000
	Net income					8,250