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 $950. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		250
Units sold		230
Units in ending inventory		20
Variable costs per unit:
Direct materials	$	125
Direct labour	$	335
Variable manufacturing overhead	$	55
Variable selling and administrative	$	30
Fixed costs:
Fixed manufacturing overhead	$	75,000
Fixed selling and administrative	$	15,000

An absorption costing income statement prepared by the companys accountant appears below:

Sales	$	218,500
Cost of goods sold		187,450
Gross margin		31,050
Selling and administrative expenses		21,900
Operating income	$	9,150

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.

IDA SIDHA KARYA COMPANY
Variable Costing Income Statement
Variable expenses:
Fixed expenses: