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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 $875. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 14,000 Units sold 12,000 Units in ending inventory 2,000 Variable costs per unit: Direct materials $ 200 Direct labor $ 420 Variable manufacturing overhead $ 64 Variable selling and administrative $ 23 Fixed costs: Fixed manufacturing overhead $ 860,000 Fixed selling and administrative $ 410,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan

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Answer:

Unitary product cost= $745.43

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

Direct materials $200

Direct labor $420

Variable manufacturing overhead $ 64

Fixed manufacturing overhead $ 860,000

First, we need to calculate the unitary fixed overhead:

Unitary fixed overhead= 860,000 / 14,000= $61.43

Now, the unitary product cost:

Unitary product cost= 200 + 420 + 64 + 61.43

Unitary product cost= $745.43

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