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?

Beginning inventory, January 1, 2017 87,000 units Ending inventory, December 31, 2017 32,000 units 2017 sales 296,000 units $ Selling price (to distributor) 25.00 per unit $ Variable manufacturing cost per unit, including direct materials 5.30 per unit $ Variable operating (marketing) cost per unit sold 1.50 per unit sold $ 1,126,400 Fixed manufacturing costs Denominator-level machine-hours 6,400 Standard production rate 40 units per machine-hour $ 1,090,000 Fixed operating (marketing) costs