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

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 $980. Selected data for the companys 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 companys 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. 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.

1.

Fixed manufacturing overhead cost included in inventory

$

2.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Prepare an income statement for last year using variable costing.

Ida Sidha Karya Company
Variable Costing Income Statement
Sales		$220,500
Variable expenses:
Variable cost of goods sold
Variable selling and administrative expense
		0
Contribution margin		220,500
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expense
		0
Net operating loss		$220,500

• Required 1
• Required 2