Ida Sidha Karya Company is a family-owned company located in the village of Gian

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 $990. Selected data for the company's operations last year follow Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit 240 225 15 Direct materials Direct labor Variable manufacturing overhead $ 120 $ 330 $ 50 25 Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative $ 72,000 $ 27,000 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 S 222,750 180,000 42,750 32,625 10,125 Required 1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period

Explanation / Answer

1) Fixed manufacturing overhead in ending inventory = 72000/240*15 = $4500

2) Variable costing income statement :

Sales 222750 Less: Variable cost of goods sold Direct material 27000 Direct labour 74250 Variable manufacturing overhead 11250 Total variable cost of goods sold 112500 Manufacturing margin 110250 Variable selling and administrative expense 5625 Contribution margin 104625 Fixed expense Fixed manufacturing overhead 72000 Fixed selling and administrative expense 27000 TOtal fixed cost 99000 Net operating income 5625

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