Requierment 1 is complete. Need help with Requirement 2, 3, & 4 please
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 chief financial officer (CFO) will use your recommendation to prepare Zwatch's 2020 income statement. The following data are for the year ended December 31, 2020: Click the icon to view the data.) (Click the icon to view the assumptions.) Read the requirements. Requirement 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. Begin by preparing the income statement under variable costing for the year ended December 31, 2020. Complete the top half of the income statement first, then complete the bottom portion. Variable costing Revenues $ 8,697,500 Variable cost of goods sold: Beginning inventory 418,200 Variable manufacturing costs 1,568,250 Cost of goods available for sale 1,986,450 Deduct ending inventory (175,950) Variable cost of goods sold 1,810,500 Variable operating costs 532,500 Contribution margin 6,354,500 Fixed manufacturing overhead costs 1,550,000 Fixed operating costs 1,060,000 Operating income (loss) $ 3,744,500 Data Table 82,000 units 34,500 units 355,000 units $24.50 per unit Beginning inventory, January 1, 2020 Ending inventory, December 31, 2020 2020 sales Selling price (to distributor) Variable manufacturing cost per unit, including direct materials Variable operating (marketing) cost per unit sold Fixed manufacturing costs Denominator-level machine-hours Standard production rate Fixed operating (marketing) costs $5.10 per unit $1.50 per unit sold $1,550,000 6,200 50 units per machine-hour $1,060,000 Requirements 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. 2. What is Zwatch's operating income as 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? Now prepare the income statement under absorption costing for the year ended December 31, 2020. Complete the top half of the income statement first, then complete the bottom portion. (Label any variances as favorable (F) or unfavorable (U).) Absorption costing Adjustment for production-volume variance Allocated fixed manufacturing costs E Beginning inventory Contribution margin Cost of goods available for sale Cost of goods sold Deduct ending inventory Fixed manufacturing overhead costs for Fixed operating costs Gross margin Operating income (loss) Revenues Variable cost of goods sold Variable manufacturing costs Variable operating costs
