Question
The Gable Company manufactures trendy, high-quality moderately priced watches. As Gable's senior financial analyst, you are asked to recommend a method of inventory costing. The
The Gable Company manufactures trendy, high-quality moderately priced watches. As Gable's senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Gable's 2017 income statement. The following data are for the year ended December 31, 2017:
Assume standard costs per unit are the same for units in beginning inventory and units produced during the year. Also, assume no price, spending, or efficiency variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.
1. | Prepare income statements under variable and absorption costing for the year ended December 31, 2017. |
2. | What is Gable'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? |
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