Ida Company produces a handcrafted 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 23,000
Units sold 20,000
Units in ending inventory 3,000

Variable costs per unit:
Direct materials $180
Direct labor $340
Variable manufacturing overhead $51
Variable selling and administrative $18

Fixed costs:
Fixed manufacturing overhead $940,000
Fixed selling and administrative $820,000

Required:
a. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.
b. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Results are below.

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.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

Absorption costing:

Unitary fixed overhead= 940,000/23,000= $40.87

Unitary production cost= 180 + 340 + 51 +40.87

Unitary production cost= $610.87

Variable costing:

Unitary production cost= 180 + 340 + 51

Unitary production cost=$571

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