The Gable Company manufactures trendy, high-quality moderately priced watches. As Gable’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Gable’s2014income statement. The following data are for the year ended December 31,2014:Beginning inventory, January 1, 201489,000unitsEnding inventory, December 31, 201434,000units2014 sales429,000unitsSelling price (to distributor)$23.00per unitVariable manufacturing cost per unit, including direct materials$5.60per unitVariable operating (marketing) cost per unit sold$1.80per unit soldFixed manufacturing costs$1,996,800Denominator-level machine-hours6,400Standard production rate60units per machine-hourFixed operating (marketing) costs$1,130,000Assume standard costs per unit are the same for units in beginning inventory and units produced during the year. Also, assume no price, spending, or efficiency variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.Requirements:1) Prepare income statements under variable and absorption costing for the year ended December 31, 20142) What is Gable’s operating income as percentage of revenues under each costing method3) Explain the difference in operating income between the two methods4) Which costing method would you recommend to the CFO? Why?

pur-new-sol

Related Questions