The
Ridgefield
Company manufactures? trendy, high-quality moderately pricedwatches. As
Ridgefield?'s
senior financial? analyst, you are asked to recommend a methodof inventory costing. The CFO will use your recommendation toprepare
Ridgefield?'s
2017
income statement. The following data are for the year endedDecember? 31,
2017?:
Beginning inventory, January 1, 2017
83,000 units
Ending inventory, December 31, 2017
34,500 units
2017 sales
424,000 units
Selling price (to distributor)
$23.50 per unit
Variable manufacturing cost per unit, including directmaterials
$4.80 per unit
Variable operating (marketing) cost per unit sold
$1.30 per unit sold
Fixed manufacturing costs
$1,766,400
Denominator-level machine-hours
6,400
Standard production rate
60 units per machine-hour
Fixed operating (marketing) costs
$1,040,000
Assume standard costs per unit are the same for units inbeginning 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 inthe month in which it occurs.
Requirements
1. | Prepare income statements under variable and absorption costingfor the year ended December? 31, 2017. |
2. | What is Ridgefield?'s operating income as percentage of revenues under each costing?method? |
3. | Explain the difference in operating income between the twomethods. |
4. | Which costing method would you recommend to the? CFO? Why? |
