Refer to the data in Exercise 6-1 for Ida Sidha Karya Company. The absorption costing income statement prepared by the company's accountant for last year appears below:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191,250
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 157,500
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33,750
Selling and administrative expense . . . . . . . . . . . . 24,500
Net operating income . . . . . . . . . . . . . . . . . . . . . . $ 9,250
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. Explain the difference in net operating income between the two costing methods.