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 $840. Selected data for the
company’s operations last year follow:
| | | |
| Units in beginning inventory | | 0 |
| Units produced | | 300 |
| Units sold | | 275 |
| Units in ending inventory | | 25 |
| Variable costs per unit: | | |
| Direct materials | $ | 100 |
| Direct labor | $ | 310 |
| Variable manufacturing overhead | $ | 30 |
| Variable selling and administrative | $ | 35 |
| Fixed costs: | | |
| Fixed manufacturing overhead | $ | 66,000 |
| Fixed selling and administrative | $ | 31,000
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The absorption costing income statement prepared by the company’s accountant for last year appears below:
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| Sales | $ | 231,000 |
| Cost of goods sold | | 181,500 |
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| Gross margin | | 49,500 |
| Selling and administrative expense | | 40,625 |
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| Net operating income | $ | 8,875 |
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| 1. |
Determine
how much of the ending inventory consists of fixed manufacturing
overhead cost deferred in inventory to the next period.
Explanation:
1.
| 25 units in ending inventory × $220 per unit fixed manufacturing overhead per unit = $5,500 |
2.
| Variable cost of goods sold (275 units sold × $440 per unit) = $121,000 |
| Variable selling and administrative expenses (275 units × $35 per unit) = $9,625 |
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