Refer to the data in Exercise 6–1 for Ida Company. The absorption costing income statement prepared by the company’s accountant for last year appears as shown:

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. Under absorption costing, how much fixed manufacturing overhead cost is included in the company’s inventory at the end of last year?

2. Prepare an income statement for last year using variable costing. Explain the difference in net operating income between the two costing methods.

Data From Exercise 6–1:

Ida Company produces a handcrafted 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