da Sidha Karya Company is a family-owned company located in the village of Giany

Question

da 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 $840. 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. Under absorption costing, how much fixed 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.

Units in beginning inventory 0 Units produced 300 Units sold 275 Units in ending inventory 25 Variable costs per unit: Direct materials $ 100 Direct labor $ 310 Variable manufacturing overhead $ 30 Variable selling and administrative $ 35 Fixed costs: Fixed manufacturing overhead $ 66,000 Fixed selling and administrative $ 31,000

Explanation / Answer

1) Fixed Manufacturing Overhead = $66,000

Units Produced = 300

Manufacturing Overhead per unit produced = $66,000/300 = $220 per unit

Manufacturing Overhead included in ending Inventory = 25 units*$220 per unit = $5,500

2) Income Statement for last year using variable costing (Amounts in $)

Sales (275 units*$840) 231,000 Less: Variable costs Direct Materials (275 units*$100) (27,500) Direct Labor (275 units*$310) (85,250) Variable Manufacturing Overhead (275 units*$30) (8,250) Variable Selling and Administrative (275 units*$35) (9,625) Contribution Margin 100,375 Less: Fixed Costs Fixed Manufacturing Overhead (66,000) Fixed Selling and Administrative (31,000) Net Operating Income 3,375

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