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In: Accounting

The Company manufactures​ trendy, high-quality moderately priced watches. As ​'s senior financial​ analyst, you are asked...

The Company manufactures​ trendy, high-quality moderately priced watches. As ​'s senior financial​ analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare ​'s Moreno's 2017 income statement. The following data are for the year ended December​ 31, 2017

Beginning inventory, January 1, 2017 88,000 units

Ending inventory, December 31, 2017 37,000 units

2017 sales 330,000 units

Selling price (to distributor) $25.00 per unit

Variable manufacturing cost per unit, including direct materials $5.60 per unit

Variable operating (marketing) cost per unit sold $1.30 per unit sold

Fixed manufacturing costs $1,276,000

Denominator-level machine-hours 5,800

Standard production rate of 50 units per machine-hour

Fixed operating (marketing) costs $1,090,000

Assume 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.

​

Prepare income statements under variable and absorption costing for the year ended December​ 31,

2017.

2.

 What is

Moreno​'s

operating income as percentage of revenues under each costing​ method?

3.

Explain the difference in operating income between the two methods.

4.

Which costing method would you recommend to the​ CFO? Why?

:

Solutions

Expert Solution

ekkarill92 answered 1 year ago
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