Exercise 6-1 Variable and Absorption Costing Unt Product Costs (LO6-1 Ida Sidha

Question

Exercise 6-1 Variable and Absorption Costing Unt Product Costs (LO6-1 Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Ba in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $831. Selected data for the company's operations last year follow Units in beginning inventory Units produced Units sold 22,000 19,000 3,000 Units in ending inventory Variable costs per unit Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 250 $ 380 S 63 $ 20 Fixed costs: Fixed manufacturing overhead S 620,000 $ 800,000 Fixed selling and administrative Required: that the company uses absorption costing Compute the unit product cost for one gamelan it product cost 2 Assume that the compary uses variable costing Compute the unit product cost for one gamelan nit pr Olype hete to searchh

Explanation / Answer

Question 1

Under absorption costing, unit product cost includes Direct materials, direct labour, variable manufacturing overheads and fixed manufacturing overheads. Fixed manufacturing overheads are apportioned to the product as fixed manufacturing overheads divided by no. of units.

Fixed manufacturing overhead per unit = $620,000/22,000 = $28.18

Product cost = Direct materials + Direct labour + Variable manufacturing overhead + Fixed manufacturing overhead

Product cost = 250+380+63+28.18 = $721.18

Question 2

Under variable costing, unit product cost includes Direct materials, direct labour, variable manufacturing overheads.

Product cost = Direct materials + Direct labour + Variable manufacturing overhead

Product cost = 250+380+63 = $693

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