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 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 $970. selected data for the company’s operations last year follow: units in beginning inventory 0 units produced 200 units sold 180 units in ending inventory 20 variable costs per unit: direct materials $ 130 direct labor $ 300 variable manufacturing overhead $ 30 variable selling and administrative $ 15 fixed costs: fixed manufacturing overhead $ 63,000 fixed selling and administrative $ 25,000 the absorption costing income statement prepared by the company’s accountant for last year appears below: sales $ 174,600 cost of goods sold 139,500 gross margin 35,100 selling and administrative expense 27,700 net operating income $ 7,400 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.

Instructions are listed below

Explanation:

Giving the following information:

Selected data for the company’s operations last year follow:

Units in beginning inventory 0

Units produced 260

Units sold 230

Units in ending inventory 30

Variable costs per unit:

Direct materials $ 105

Direct labor $ 325

Variable manufacturing overhead $ 45

Variable selling and administrative $ 15

Fixed costs:

Fixed manufacturing overhead $ 65,000

Fixed selling and administrative $ 21,000

A) fixed manufacturing overhead on income statement= (65000/260)*230= $57,500

COGS= (105 + 325 + 45)*230 + 57500= $166,750

B) Variable costing income statement:

Sales= 870*230= $200,100

Variable cost= (105 + 325 + 45 + 15)*230= $112,700

Contribution margin= $87,400

Fixed manufacturing overhead $ 65,000

Fixed selling and administrative $ 21,000

Net operational profit= $1,400

The difference resides in the fixed manufacturing overhead costs. In absorption costing the fixed moh is included in the cost of goods sold. Therefore, the unsold units receive fixed costs that remain in the inventory.  

Total unit cost= $736.5

Explanation:

Giving the following information:

Units in beginning inventory 0

Units produced 20,000

Units sold 17,000

Units in ending inventory 3,000

Variable costs per unit:

Direct materials $160

Direct labor $470

Variable manufacturing overhead $58

Variable selling and administrative$25

Fixed costs:

Fixed manufacturing overhead $970,000

Fixed selling and administrative $570,000

Absorption costing:

Variable direct material= 160

Direct labor= 470

Variable manufacturing overhead= 58

Fixed MOH= 970000/20000= 48.5

Total unit cost= $736.5