Question

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar 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 $870. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 260 Units sold 230 Units in ending inventory 30 Variable costs per unit: Direct materials $ 105 Direct labor $ 325 Variable manufacturing overhead $ 45 Variable selling and administrative $ 15 Fixed costs: Fixed manufacturing overhead $ 65,000 Fixed selling and administrative $ 21,000 The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales $ 200,100 Cost of goods sold 166,750 Gross margin 33,350 Selling and administrative expense 24,450 Net operating income $ 8,900 Required:

1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Answer 1

Fixed Manufacturing Overhead Cost Deferred in Inventory = $7500

Calculated as following

Units produced 260

Units sold = 230

Ending Units = 30

Fixed costs: Fixed manufacturing overhead $ 65,000

Fixed overhead rate for Units Produced = Fixed Manufacturing Overhead/Total units produced = $65000/260 = $250

So $250 per unit is included in valuation a unit produced

so as there are 30 Units unsold

so Fixed Manufacturing Overhead Cost Deferred in Inventory = Ending Units X Fixed overhead in one unit

= 30 x $250

= $7500

Answer 2

Ida Sidha Karya Company
Variable Costing Income Statement
Sales = 230*870		$     200,100
Less. Variable Cost
Direct Material = 230*105	$    24,150
Direct Labor = 230*325	$    74,750
Variable overhead = 230*45	$    10,350
Variable Selling overhead = 230*15	$      3,450
Total Variable Cost		$     112,700
Contribution		$        87,400
Fixed Manufacturing Overhead	$    65,000
Fixed Selling and Administrative overhead	$    21,000
Total Fixed Overhead		$        86,000
Net Income(Loss)		$          1,400

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