Ida Sidha Karya Company is a family-owned company located 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 $860. Selected data for the company’s operations last year follow: Units in beginning inventory 0
Units produced 320
Units sold 285
Units in ending inventory 35
Variable costs per unit:
Direct materials $135
Direct labor $355
Variable manufacturing overhead $30
Variable selling and administrative $15
Fixed costs:
Fixed manufacturing overhead $64,000
Fixed selling and administrative $27,000

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Sales $245,100
Cost of goods sold 205,200
Gross margin 39,900
Selling and administrative expense 31,275
Net operating income $8,625

Required:
a. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
b. Prepare an income statement for the year using variable costing.

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