Ida Sidha Karya Company is a family-owned company located 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 $722. Selected data for the company’s operations last year follow:

Ida Sidha Karya Company is a family-owned company located 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 $722. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		24,000
Units sold		21,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials	$	170
Direct labor	$	340
Variable manufacturing overhead	$	62
Variable selling and administrative	$	18
Fixed costs:
Fixed manufacturing overhead	$	730,000
Fixed selling and administrative	$	680,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Explanation

1.

Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.

  

Direct materials	$	170
Direct labor		340
Variable manufacturing overhead		62
Fixed manufacturing overhead ($730,000 ÷ 24,000 units)		30
Absorption costing unit product cost	$	602

 
2.

Under variable costing, only the variable manufacturing costs are included in product costs.

  

Direct materials	$	170
Direct labor		340
Variable manufacturing overhead		62
Variable costing unit product cost	$	572

  

Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period’s revenue.

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