Question

In: Accounting

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

The

Ridgefield

Company manufactures​ trendy, high-quality moderately priced watches. As

Ridgefield​'s

senior financial​ analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare

Ridgefield​'s

2017

income statement. The following data are for the year ended December​ 31,

2017​:

Beginning inventory, January 1, 2017

83,000 units

Ending inventory, December 31, 2017

34,500 units

2017 sales

424,000 units

Selling price (to distributor)

$23.50 per unit

Variable manufacturing cost per unit, including direct materials

$4.80 per unit

Variable operating (marketing) cost per unit sold

$1.30 per unit sold

Fixed manufacturing costs

$1,766,400

Denominator-level machine-hours

6,400

Standard production rate

60 units per machine-hour

Fixed operating (marketing) costs

$1,040,000

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.

Requirements

1.

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

2017.

2.

 What is

Ridgefield​'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 4 months ago
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