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

ID: 2416712 • Letter: I

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 $972. Selected data for the company’s operations last year follow:

Units in beginning inventory

Units produced

13,000

Units sold

10,000

Units in ending inventory

3,000

Variable costs per unit:

Direct materials

$ 230

Direct labor

$ 510

Variable manufacturing overhead

$ 50

Variable selling and administrative

$ 20

Fixed costs:

Fixed manufacturing overhead

$ 930,000

Fixed selling and administrative

$ 590,000

Required:

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

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

Explanation / Answer

Answer:

Calculation of per unit cost:

(Amount in $)

Using absorption costing per unit product cost is $ 862 while using marginal costing per unit product cost is $ 790.

Note 1. Fixed manufacturing overhead is considered as product cost in absorption costing while same is considered as periodic cost in marginal costing.

Note 2. Both variable and fixed administrative and selling expenses are treated as periodic cost under both marginal and absorption costing.

1. Absorption Costing 2. Marginal Costing Direct materials 230 230 Direct labor 510 510 Variable manufacturing overhead 50 50 Fixed manufacturing overhead (=930000/13000) 72 Per unit product cost 862 790

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

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

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