Question

Chapter 6 Practice Exercises and Problems (3 pts. Extra-Credit) Ida Sidha Karya Company is a family-owned company located in the village of Gianyar 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 $850. Selected data for the company's operations last year follow: 03 points se i Units in beginning inventory Units produced Units sold units in ending Inventory Variable costs per uniti Direct materials Direct labor Variable manufacturing overhead Variable selling and dinistrative Fixed costs Fixed manufacturing overhead Fixed selling and administrative The absorption costing income statement prepared by the company's accountant for last year appears below Cost of goods sold Gross margin Selling and administrative expense Net operating income 33.750 24.ee 59.230 Required: 1. Under absorption costing, how much fed 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

1. Total fixed manufacturing overhead in ending inventory      [Refer working note 1]	$6,000
Ida Sidha Karya Company
Variable Costing Income Statement
Sales                                                                         [Refer absorption costing income statement]		$191,250
Variable Expenses:
Variable Cost of Goods Sold                         [Refer working note 2]	$103,500
Variable Selling and administrative expenses	$4,500
[$103,500 + $4,500]		$108,000
Contribution Margin           [Sales - Variable expenses = $191,250 - $108,000]		$83,250
Fixed expenses:
Fixed manufacturing costs	$60,000
Fixed selling and administrative expenses	$20,000
[$60,000 + $20,000]		$80,000
Net Operating Income            [$83,250 - $80,000]		$3,250

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Working note 1 - Calculation of total fixed manufacturing overhead in ending inventory
Total fixed manufacturing overhead                                     (a)	$60,000
Number of units produced                                                     (b)	250
Fixed manufacturing overhead per unit                                 (c = a / b)	$240
Number of units in ending inventory                                     (d)	25
Total fixed manufacturing overhead in ending inventory        (c x d)	$6,000

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Working note 2 - Calculation of Variable cost of goods sold
Direct material per unit	$100
Direct labor per unit	$320
Variable overhead per unit	$40
Cost per unit under variable costing [$100 + $320 + $40]            (a)	$460
Number of units sold                                                                      (b)	225
Variable cost of goods sold                                                           (a x b)	$103,500