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
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 to a Canadian importer for $850. Selected data for the companys operations last year follow:
Units in beginning inventory | 0 | ||
Units produced | 500 | ||
Units sold | 450 | ||
Units in ending inventory | 50 | ||
Variable costs per unit: | |||
Direct materials | $ | 150 | |
Direct labour | $ | 270 | |
Variable manufacturing overhead | $ | 40 | |
Variable selling and administrative | $ | 25 | |
Fixed costs: | |||
Fixed manufacturing overhead | $ | 120,000 | |
Fixed selling and administrative | $ | 40,000 | |
An absorption costing income statement prepared by the companys accountant appears below:
Sales | $ | 382,500 | |
Cost of goods sold | 315,000 | ||
Gross margin | 67,500 | ||
Selling and administrative expenses | 51,250 | ||
Operating income | $ | 16,250 | |
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 the variable costing method.
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