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 $910. Selected data for the company’s operations last year follow:

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Required:

1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

2. Prepare an income statement for the year using variable costing.

Units in beginning inventory 0 Units produced 310 Units sold 280 Units in ending inventory 30 Variable costs per unit: Direct materials $ 130 Direct labor $ 350 Variable manufacturing overhead $ 50 Variable selling and administrative $ 40 Fixed costs: Fixed manufacturing overhead $ 62,000 Fixed selling and administrative $ 26,000

Explanation / Answer

1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Fixed manufacturing overhead cost deferred in inventory = 62000/310*30 = 6000

2. Prepare an income statement for the year using variable costing.

Sales (910*280) 254800 Less: Variable expense Direct material 36400 Direct labour 98000 Variable manufacturing overhead 14000 Variable selling and administrative 11200 Total variable expense 159600 Contribution margin 95200 Fixed cost Fixed manufacturing overhead 62000 Fixed selling and administrative 26000 Total fixed cost 88000 Net operating income 7200

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