The Montre Company manufactures trendy, high-quality moderately priced watches. As Montre's senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Montre's 2017 income statement. The following data are for the year ended December 31, 2017: (Click the icon to view the data.) Requirements 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2017 2. What is Montre'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? 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 Now prepare the income statement under absorption costing for the year ended December 31, 2017. Complete the top half of the income statement first then complete the bottom portion. (Label any variances as favorable (F) or unfavorable (U).) Absorption casting Data Table Beginning inventory, January 1, 2017 Ending inventory, December 31, 2017 2017 sales Selling price (to distributor) Variable manufacturing cost per unit, including direct materials 89.000 units 32,000 units 305.000 units $20.50 per unit Variable operating (marketing) cost per unit sold Fixed manufacturing costs Denominator-level machine-hours $5.10 per unit $1.10 per unit sold $1,325,000 8,500 40 units per machine-hour $1,040,000 Standard production rate Fixed operating (marketing) costs