The Zwatch Company manufactures trendy, high-quality moderately priced watches. As Zwatch's senior financial analyst, you are asked
Question:
The Zwatch Company manufactures trendy, high-quality moderately priced watches. As Zwatch's senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Zwatch's 2018 statement of comprehensive income. The following data are for the year ended December 31, 2018:
Beginning inventory, January 1, 2018 | 85,000 units |
Ending inventory, December 31, 2018 | 34,500 units |
2018 sales | 345,400 units |
Selling price (to distributor) | $22.00 per unit |
Variable manufacturing cost per unit. including direct materials | $5.10 per unit |
Variable operating (marketing) cost per unit sold | $1.10 per unit sold |
Fixed manufacturing costs | $1,440,000 |
Denominator-level machine-hours | 6,000 |
Standard production rate | 50 units per machine-hour |
Fixed operating (marketing) costs | $1,440,000 |
Assume standard costs per unit are the same for units in beginning inventory and units produced during the year. Also, assume no price, rate, or efficiency variances. Any production-volume variance is written off to COGS in the month in which it occurs.
Required
1. Prepare statements of comprehensive income under variable and absorption costing for the year ended December 31, 2018.
2. What is Zwatch's operating income as a 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?
Ending InventoryThe ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134453736
8th Canadian Edition
Authors: Srikant M. Datar, Madhav V. Rajan, Louis Beaubien