Exercise 6-2 (Algo) Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO6-2]

Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $980. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		280
Units sold		265
Units in ending inventory		15
Variable costs per unit:
Direct materials	$	150
Direct labor	$	370
Variable manufacturing overhead	$	45
Variable selling and administrative	$	30
Fixed costs:
Fixed manufacturing overhead	$	70,000
Fixed selling and administrative	$	30,000

The absorption costing income statement prepared by the companys accountant for last year appears below:

Sales	$	259,700
Cost of goods sold		215,975
Gross margin		43,725
Selling and administrative expense		37,950
Net operating income	$	5,775

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.