Homework SourseIda Sidha Karya Company is a familyowned company located in
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 $910. 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. 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 variable costing.
| Units in beginning inventory | 0 | |
| Units produced | 310 | |
| Units sold | 280 | |
| Units in ending inventory | 30 | |
| Variable costs per unit: | ||
| Direct materials | $ | 130 |
| Direct labor | $ | 350 |
| Variable manufacturing overhead | $ | 50 |
| Variable selling and administrative | $ | 40 |
| Fixed costs: | ||
| Fixed manufacturing overhead | $ | 62,000 |
| Fixed selling and administrative | $ | 26,000 |
Solution
1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
Fixed manufacturing overhead cost deferred in inventory = 62000/310*30 = 6000
2. Prepare an income statement for the year using variable costing.
| Sales (910*280) | 254800 | |
| Less: Variable expense | ||
| Direct material | 36400 | |
| Direct labour | 98000 | |
| Variable manufacturing overhead | 14000 | |
| Variable selling and administrative | 11200 | |
| Total variable expense | 159600 | |
| Contribution margin | 95200 | |
| Fixed cost | ||
| Fixed manufacturing overhead | 62000 | |
| Fixed selling and administrative | 26000 | |
| Total fixed cost | 88000 | |
| Net operating income | 7200 |
