Ida Sidha Karya Company is a family-owned company located on the island of Bali

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 $956. Selected data for the company’s operations last year follow:

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Units in beginning inventory 0 Units produced 21,000 Units sold 18,000 Units in ending inventory 3,000 Variable costs per unit: Direct materials $ 200 Direct labor $ 520 Variable manufacturing overhead $ 64 Variable selling and administrative $ 22 Fixed costs: Fixed manufacturing overhead $ 880,000 Fixed selling and administrative $ 520,000

Explanation / Answer

1. Under Absorption Costing :

2. Under Variable Costing :

Selling and administrative expenses, whether fixed or variable, do not form part of product cost either under absorption or variable costing. They are treated as period costs.

Direct Materials $ 200 Direct Labor 520 Variable Manufacturing Overhead 64 Fixed Manufacturing Overhead ( $ 880,000 / 21,000) 42 Unit Product Cost $ 826

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