The Zeta Company manufactures trendy, good-looking, moderately priced umbrellas. As Zetas senior financial analyst, you are asked
Question:
The Zeta Company manufactures trendy, good-looking, moderately priced umbrellas. As Zeta’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Zeta’s 2020 income statement. The following data are for the year ended December 31, 2020:
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.
Required
1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020.
2. What is Zeta’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?
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 9780135628478
17th Edition
Authors: Srikant M. Datar, Madhav V. Rajan