Reference no: EM13586065

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 sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately hand-carved wooden base. The gamelans are sold for 850 (thousand) rupiahs. (The currency in Indonesia is the rupiah, which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands of rupiahs):

Units in beginning inventory 0
Units produced 250
Units sold 225
Units in ending inventory 25
Variable costs per unit:
Direct materials Rp100
Direct labor Rp320
Variable manufacturing overhead Rp40
Variable selling and administrative Rp20
Fixed costs:
Fixed manufacturing overhead Rp60,000
Fixed selling and administrative Rp20,000
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The absorption costing income statement prepared by the company's accountant for last year appears below (all currency values are in thousands of rupiahs):

Sales Rp191,250
Cost of goods sold 157,500
Gross margin 33,750
Selling and administrative expenses 24,500
Net operating income Rp9,250
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Requirement 1:
Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Requirement 2:
Prepare an income statement for the year using the variable costing method. Explain the difference in net operating income between the two costing methods.