Reference no: EM132561669

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           90 000 units

Ending inventory, 31 December 2018            34 000 units

2018 sales                                    433 000 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                                                        $1 852 200

Denominator-level machine-hours                                             6 300

Budgeted production rate                                                 60 units per machine-hour

Fixed operating (marketing) costs                                         $1 130 000

Required

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