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 $880. Selected data for the company’s operations last year follow:Units in beginning inventory 0Units produced 280Units sold 240Units in ending inventory 40Variable costs per unit: Direct materials $ 115 Direct labor $ 335 Variable manufacturing overhead $ 35 Variable selling and administrative $ 25 Fixed costs: Fixed manufacturing overhead $ 63,000 Fixed selling and administrative $ 23,000 The absorption costing income statement prepared by the company’s accountant for last year appears below:Sales $ 211,200Cost of goods sold 170,400Gross margin 40,800Selling and administrative expense 29,000Net operating income $ 11,800Required:Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Answer 1

Answer:

Fixed manufacturing cost allocated to inventory= $9,000

Explanation:

Giving the following information:

Units in beginning inventory 0

Units produced 280

Units sold 240

Units in ending inventory 40

Fixed manufacturing overhead $63,000

The absorption costing method includes all costs related to production, both fixed and variable.

First, we need to calculate the unitary fixed manufacturing cost:

unitary fixed manufacturing cost= 63,000/280= $225

Fixed manufacturing cost allocated to inventory= 40*225=$9,000