Question

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 $893. Selected data for the company’s operations last year follow: Units in beginning inventory 0Units produced 14,000Units sold 12,000Units in ending inventory 2,000Variable costs per unit: Direct materials $ 150Direct labor $ 510Variable manufacturing overhead $ 47Variable selling and administrative $ 21Fixed costs: Fixed manufacturing overhead $ 640,000Fixed selling and administrative $ 770,000 Required:1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

1. absorption costing

Unit product cost is $ 752.71

2. variable costing

Unit product cost is $707.00

Step-by-step explanation:

absorption costing

Both Variable and Fixed Manufacturing Costs are treated as Product Cost

the unit product cost for one gamelan

Direct materials $ 150.00

Direct labor $ 510.00

Variable manufacturing overhead $ 47.00

Fixed manufacturing overhead ( $ 640,000 / 14,000 units) $45.71

Unit product cost $ 752.71

variable costing

Only Variable Costs of Manufacturing are Included in the Product Cost.

Fixed Manufacturing Costs are treated as Period Costs and Expended to Profit and Loss Account

the unit product cost for one gamelan

Direct materials $ 150.00

Direct labor $ 510.00

Variable manufacturing overhead $ 47.00

Unit product cost $707.00