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 & administrative $ 20

Fixed Costs:

Fixed Manufacturing Overhead... $60,000

Fixed selling & administrative..... $20,000

Refer to the data in Exercise 6?1 for Ida Sidha Karya Company. The absorption costing income statement prepared by the company?s accountant for last year appears below:

Sales:................... $191,250

Cost of Goods Sold: $157,500

Gross Margin:.......... $ 33,750

Selling & Admin expense $24,500

Net Operating Income.... $ 9,250

Required:

Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

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