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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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