The Moreno Company manufactures trendy, high-quality, moderately priced watches. As Moreno'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 Moreno's 2020 income statement. The following data are for the year ended December 31,

2020:

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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				$7,480,000
Variable cost of goods sold:
	Beginning inventory		$448,800
	Variable manufacturing costs		1,479,000
	Cost of goods available for sale		1,927,800
	Deduct ending inventory		(193,800)
	Variable cost of goods sold			1,734,000
Variable operating costs				442,000
Contribution margin				5,304,000

Fixed manufacturing overhead costs				1,416,000
Fixed operating costs				1,090,000
Operating income (loss)				$2,798,000

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

Revenues

7480000

Cost of goods sold:

Beginning inventory

Variable manufacturing costs

Allocated fixed manufacturing costs

Cost of goods available for sale

Deduct ending inventory

Adjustment for production-volume variance

Cost of goods sold

Gross margin

Data Table:

Beginning inventory, January 1, 2020	88,000 units
Ending inventory, December 31, 2020	38,000 units
2020 sales	340,000 units
Selling price (to distributor)	$22.00 per unit
Variable manufacturing cost per unit, including direct materials	$5.10 per unit
Variable operating (marketing) cost per unit sold	$1.30 per unit sold
Fixed manufacturing costs	$1,416,000
Denominator-level machine-hours	5,900
Standard production rate	50 units per machine-hour
Fixed operating (marketing) costs	$1,090,000