TOPIC: VARIABLE AND ABSORPTION COSTING

Pimlico Ltd makes trendy, high-quality, moderately priced watches. You are Pimlico's senior financial analyst and management asks you to recommend a method of inventory costing. The CFO will use your recommendation to prepare Pimlico's 2018 income statement. The following data are for the year ended 31 December 2018:

Beginning inventory, 1 January 2018

90000 units

Ending inventory, 31 December 2018

34000 units

2018 sales

433000 units

Selling price (to distributor)

$24.00 per unit

Variable production cost per unit, including direct materials

$5.40 per unit

Variable operating (marketing) cost per unit sold

$1.20 per unit sold

Fixed production costs

$1852 200

Denominator-level machine-hours

6300

Budgeted production rate

60 units per machine-hour

Fixed operating (marketing) costs

$1130000

Required

1.Prepare income statements under variable and absorption costing for the year ended 31 December 2018.