Question

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 $850. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 250 Units sold 225 Units in ending inventory 25 Variable costs per unit: Direct materials $ 100 Direct labor $ 320 Variable manufacturing overhead $ 40 Variable selling and administrative $ 20 Fixed costs: Fixed manufacturing overhead $ 60,000 Fixed selling and administrative $ 20,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. 2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Units in beginning inventory 0

Units produced 250

Units sold 225

Units in ending inventory 25

Variable costs per unit:

Direct materials $100

Direct labor $320

Variable manufacturing overhead $40

Variable selling and administrative $20

Fixed costs:

Fixed manufacturing overhead $60,000

Fixed selling and administrative $20,000

a) Under absorption costing the fixed overhead gets allocated to the product cost:

Product cost= direct material + direct labor + variable overhead + fixed overhead

Unitary cost= 100 + 320 + 40 + (60,000/250 units)= $700 per unit

b) In variable costing, the fixed overhead is a period cost:

Unitary cost= direct material + direct labor  + variable overhead

Unitary cost= 100 + 320 + 40= $460