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 $850. Selected data for the company’s operations last year follow:. Units in beginning inventory 0 Units produced 250 Units sold 225 Units in ending inventory 25 Variable costs per unit: Direct materials $ 100 Direct labor $ 320 Variable manufacturing overhead $ 40 Variable selling and administrative $ 20 Fixed costs: Fixed manufacturing overhead $ 60,000 Fixed selling and administrative $ 20,000
The absorption costing income statement prepared by the company’s accountant for last year appears below:
Sales$191,250
Cost of goods sold 157,500
Gross margin 33,750
Selling and administrative expense 24,500
Net operating income$9,250
Required:
1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
2. Prepare an income statement for the year using variable costing.