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 $910. Selected data for the company's operations last year follow: 0 300 270 30 Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative su 140 350 35 15 $ 69,000 $ 26,000 The absorption costing income statement prepared by the company's accountant for last year appears below: Sales Cost of goods sold Gross margin Selling and administrative expense Net operating income $ 245, 700 203,850 41,850 30,050 $ 11,800 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

Solution

Fixed manufacturing overheads included in ending inventory in Absorbtion costing (23*30)

$        6,900.00

.

Ida Sidha Karya Company
Variable costing income statement
Sales		$   245,700.00
Variable Cost
Variable cost of Goods Sold	$   141,750.00
Variable Selling & administrative	$        4,050.00
Total variable cost		$   145,800.00
Contribution margin		$      99,900.00
Fixed Costs:
Fixed Cost of Goods Sold	$      69,000.00
Fixed Selling & Administrative	$      26,000.00
Total Fixed Cost		$      95,000.00
Net Income		$        4,900.00

Working

Fixed manufacturing overheads	$      69,000.00
Units produced	300
Fixed manufacturing overheads per unit (69000/300)	$                  230
Fixed manufacturing overheads included in ending inventory in Absorbtion costing (30 x 230)	$        6,900.00
Fixed manufacturing overheads included in Cost of goods sold in Absorbtion costing (270 x 230)	$      62,100.00