Reference no: EM132536330

Variable Costing Income Statement; Explanation of Difference in Net Operating Income

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

The absorption costing income statement prepared by the company's accountant for last year appears as shown:

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:

Question 1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

Question 2. Prepare an income statement for last year using variable costing. What is the amount of the difference in net operating income between the two costing methods?