Reference no: EM132995834
Question - The Garrard Company manufactures? trendy, high-quality, moderately priced watches. As Garrard?'s senior financial? analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Garrard?'s 2018 statement of comprehensive income. The following data are for the year ended December? 31, 2018.
Beginning inventory, January 1, 2018 88,000 units
Ending inventory, December 31, 2018 34,000 units
2018 sales 293,000 units
Selling price (to distributor) $20.00 per unit
Variable manufacturing cost per unit, including direct materials $5.70 per unit
Variable operating (marketing) cost per unit sold $1.60 per unit sold
Fixed manufacturing costs $1,165,600
Denominator-level machine-hours 6,200
Standard production rate 40 units per machine-hour
Fixed operating (marketing) costs $1,050,000
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 Garrard?'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?
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