Question

Ida Sidha Karya Company Is a famly-owned company located on the Island of Ball in Indonesia. The company produces a handcrafted Ballnese musical Instrument called a gamelan that Is similar to a xylophone. The gamelans are sold for $950. Selected data for the company's operations last year follow Units in beginning inventory Units produced Units sold 270 225 Units in ending inventory Variable costs per unit: Direct materials 35 110 Direct labor 330 Variable manufaeturing ovexhead Variable selling and a dministrative Fixed costs: Fixed manufacturing overhe ad Pixed selling and administrative 30 20 $81,000 $ 22,000 The absorption costing Income statement prepared by the company's accountant for last year appears below Sales $ 223,250 Cost of qgoods sold Gross margin Selling and administrative expense 180,950 42,300 26,700 Net operating income 15, 600 Requlred: 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 varlable costing. What is the amount of the difference In net operating Income between the two costing methods?

Answer 1

Solution 1:

Fixed manufacturing overhead per unit = $81,000 / 270 = $300 per unit

Nos of units in ending inventory = 35

Fixed manufacturing overhead cost included in ending inventory = 35 * $300 = $10,500

Solution 2:

Ida Sidha Karya Company
Income Statement (Variable Costing)
Net Sales Revenue		$222,250
Less: Variable costs:
Variable cost of goods sold [235*(110+330+30)]	$110,450
Variable Selling and Administrative costs(235*20)	$4,700	$115,150
Gross Profit		$107,100
Less: Fixed Costs
Fixed Cost of Goods sold	$81,000
Fixed Selling and Administrative costs	$22,000	$103,000
Operating Income		$4,100