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 $950. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		250
Units sold		235
Units in ending inventory		15
Variable costs per unit:
Direct materials	$	135
Direct labor	$	345
Variable manufacturing overhead	$	30
Variable selling and administrative	$	20
Fixed costs:
Fixed manufacturing overhead	$	65,000
Fixed selling and administrative	$	25,000

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

Sales	$	223,250
Cost of goods sold		180,950
Gross margin		42,300
Selling and administrative expense		29,700
Net operating income	$	12,600

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

$3,900

2.

Prepare an income statement for the year using variable costing.

Ida Sidha Karya Company
Variable Costing Income Statement
Variable expenses:
		0
		0
Fixed expenses:
		0
		$0