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

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 $940. Selected data for the company’s operations last year follow:

 

Units in beginning inventory		0
Units produced		13,000
Units sold		9,000
Units in ending inventory		4,000
Variable costs per unit:
Direct materials		$ 220
Direct labor		$ 500
Variable manufacturing overhead		$ 59
Variable selling and administrative		$ 24
Fixed costs:
Fixed manufacturing overhead		$ 790,000
Fixed selling and administrative		$ 580,000

 

Required:

1.

Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.   Explanation: 1. Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.           Direct materials $ 220     Direct labor   500     Variable manufacturing overhead   59     Fixed manufacturing overhead      ($790,000 ÷ 13,000 units)   61       Absorption costing unit product cost $ 840       2. Under variable costing, only the variable manufacturing costs are included in product costs.           Direct materials $ 220     Direct labor   500     Variable manufacturing overhead   59       Variable costing unit product cost $ 779       Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period’s revenue.