The Zwatch Company manufactures trendy, high-quality, moderately priced watches. As Zwatch'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 Zwatch's 2020 income statement. The following data are for the year ended December 31, 2020: (Click the icon to view the data.) (Click the icon to view the assumptions.) Read the requirements. 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 Data table Requirements 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. 2. What is Zwatch'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, 2020 Ending inventory, December 31, 2020 2020 sales Selling price (to distributor) Variable manufacturing cost per unit, including direct materials Variable operating (marketing) cost per unit sold Fixed manufacturing costs Denominator-level machine-hours Standard production rate Fixed operating (marketing) costs Assumptions 81,000 units 33,000 units 289,000 units $24.50 per unit $5.50 per unit $1.80 per unit sold $1,098,000 6,100 40 units per machine-hour $1,050,000 ☑ 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.
The Zwatch Company manufactures trendy, high-quality, moderately priced watches. As Zwatch'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 Zwatch's 2020 income statement. The following data are for the year ended December 31, 2020: (Click the icon to view the data.) (Click the icon to view the assumptions.) Read the requirements. 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 Data table Requirements 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. 2. What is Zwatch'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, 2020 Ending inventory, December 31, 2020 2020 sales Selling price (to distributor) Variable manufacturing cost per unit, including direct materials Variable operating (marketing) cost per unit sold Fixed manufacturing costs Denominator-level machine-hours Standard production rate Fixed operating (marketing) costs Assumptions 81,000 units 33,000 units 289,000 units $24.50 per unit $5.50 per unit $1.80 per unit sold $1,098,000 6,100 40 units per machine-hour $1,050,000 ☑ 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please answer this with must explanation , computation for each part and steps in detail answer in text form
Transcribed Image Text:The Zwatch Company manufactures trendy, high-quality, moderately priced watches. As Zwatch'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 Zwatch's 2020 income statement. The following data are for the year ended December 31, 2020:
(Click the icon to view the data.) ( (Click the icon to view the assumptions.)
Read the requirements.
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
Data table
Requirements
1. Prepare income statements under variable and absorption costing for the year
ended December 31, 2020.
2. What is Zwatch'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, 2020
Ending inventory, December 31, 2020
2020 sales
Selling price (to distributor)
Variable manufacturing cost per unit, including direct materials
Variable operating (marketing) cost per unit sold
Fixed manufacturing costs
Denominator-level machine-hours
Standard production rate
Fixed operating (marketing) costs
Assumptions
81,000 units
33,000 units
289,000 units
$24.50 per unit
$5.50 per unit
$1.80 per unit sold
$1,098,000
6,100
40 units per machine-hour
$1,050,000
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.
-
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Step 1: Define the concept of variable costing.
VIEWStep 2: Schedule the income statement in variable and absorption costing.
VIEWStep 3: Determine the percentage of operating income to revenue in both methods.
VIEWStep 4: Determine the difference in operating income of two methods.
VIEWStep 5: State the method to be recommended to CFO.
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