Exercise 5-2 Variable Costing Income Statement Explanation of Difference in Net
ID: 2396035 • Letter: E
Question
Exercise 5-2 Variable Costing Income Statement Explanation of Difference in Net Operating Income [LO5-2] 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 $910. Selected data for the company's operations last year follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: 310 280 30 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative S 130 S 350 S 50 40 Fixed costs: Fixed manufacturing overhead Fixed selling and administrative S 62,000 S 26,000 The absorption costing income statement prepared by the company's accountant for last year appears below: Sales Cost of goods sold Gross margin Selling and administrative expense Net operating income $254,800 204,400 50,400 37 $13,200 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.Explanation / Answer
1) Total fixed manufacturing overhead in ending inventory = (62000/310)*30 = $6000
2) Contribution format income statement :
Sales 254800 Less: Variable expense Direct material (280*130) 36400 Direct labour (280*350) 98000 Variable manufacturing overhead (280*50) 14000 Variable selling and administrative 11200 Total variable expense 159600 Contribution margin 95200 Fixed expense Fixed manufacturing overhead 62000 Fixed selling and administrative expense 26000 Total fixed cost 88000 Net operating income 7200