Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.

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Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.

EXERCISE 5–1 Variable and Absorption Costing Unit Product Costs [LO 5–1]

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
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Required:

Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.
Assume that the company uses variable costing. Compute the unit product cost for one gamelan.
EXERCISE 5–2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO 5–2]

Refer to the data in Exercise 5–1 for Ida Sidha Karya Company. 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:

Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
Prepare an income statement for the year using variable costing. Explain the difference in net operating income between the two costing methods.
EXERCISE 5–3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO 5–3]

Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data:

 

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