Ida 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 $990. Selected data for the company\'s operations last year follow Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit 240 225 15 Direct materials Direct labor Variable manufacturing overhead $ 120 $ 330 $ 50 25 Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative $ 72,000 $ 27,000 The absorption costing income statement prepared by the company\'s accountant for last year appears below Sales Cost of goods sold Gross margin Selling and administrative expense Net operating income S 222,750 180,000 42,750 32,625 10,125 Required 1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period

Solution

1) Fixed manufacturing overhead in ending inventory = 72000/240*15 = $4500

2) Variable costing income statement :

Sales		222750
Less: Variable cost of goods sold
Direct material	27000
Direct labour	74250
Variable manufacturing overhead	11250
Total variable cost of goods sold		112500
Manufacturing margin		110250
Variable selling and administrative expense		5625
Contribution margin		104625
Fixed expense
Fixed manufacturing overhead	72000
Fixed selling and administrative expense	27000
TOtal fixed cost		99000
Net operating income		5625