Ida Sidha Karya Company is a family-owned company located in the village of Glanyar 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 $980. Selected data for the company’s operations last year follow: Units in beginning inventory 0
Units produced 240
Units sold 225
Units in ending inventory 15
Variable costs per unit:
Direct materials $ 140
Direct labor $ 360
Variable manufacturing overhead $ 35
Variable selling and administrative $ 20
Fixed costs:
Fixed manufacturing overhead $ 66,000
Fixed selling and administrative $ 28,000
The absorption costing income statement prepared by the company’s accountant for last year appears below:
Sales $ 220,500
Cost of goods sold 182,250
Gross margin 38,250
Selling and administrative expense 32,500
Net operating income $ 5,750
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.