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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. (Click the icon to view the data.) 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 Requirement 1. Prepare statements of comprehensive income under variable and absorption costing for the year ended December 31, 2018. Begin by preparing the statement of comprehensive income under variable costing for the year ended December 31, 2018. Complete the top half of the statement of comprehensive income first, and then complete the bottom portion. (Complete all answer boxes. Use parentheses or a minus sign for an operating loss.) Variable costing Revenues 5860000 Variable cost of goods sold: Beginning inventory 501600 Variable manufacturing costs 1362300 Cost of goods available for sale 1863900 Deduct: Ending inventory -193800 Variable cost of goods sold 1670100 Variable operating costs 468800 Variable cost of goods sold 2138900 Contribution margin 3721100 Choose from any list or enter any number in the input fields and then continue to the next question.Now prepare the statement of comprehensive income under absorption costing for the year ended December 31, 2018. Complete the top half of the statement of comprehensive income first, and then complete the bottom portion. (Complete all answer boxes. Label any variances as favourable (F) or unfavourable (U). Use parentheses or a minus sign for an operating loss.) Absorption costing Revenues 5860000 Cost of goods sold: Beginning inventory 106723 Variable manufacturing costs 1362300 Allocated fixed manufacturing costs 1123300 Cost of goods available for sale 2592323 Deduct: Ending inventory -41234 Adjustment for production-volume variance U Cost of goods sold Gross margin Variable operating costsVariable operating costs Fixed operating costs Operating income (loss) Requirement 2. What is Garrard's operating income as a percentage of revenues under each costing method? (Round the percentages to one decimal place, X.X%. Use parentheses or a minus sign for negative percentages.) Operating income as % of revenues Variable costing Absorption costing Requirement 3. Explain the difference in operating income between the two methods. Operating income using variable costing is than operating income using absorption costing. The main difference between variable costing and absorption costing is the way Requirement 4. Which costing method would you recommend to the CFO? Why?Requirement 4. Which costing method would you recommend to the CFO? Why? The costing method should be recommended as it considersX H Data 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
