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 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 $880. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		280
Units sold		240
Units in ending inventory		40
Variable costs per unit:
Direct materials	$	115
Direct labor	$	335
Variable manufacturing overhead	$	35
Variable selling and administrative	$	25
Fixed costs:
Fixed manufacturing overhead	$	63,000
Fixed selling and administrative	$	23,000

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

Sales	$	211,200
Cost of goods sold		170,400
Gross margin		40,800
Selling and administrative expense		29,000
Net operating income	$	11,800

Required:

1.	Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Total fixed manufacturing overhead in ending inventory

2.	Prepare an income statement for the year using variable costing.

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