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 2014 income statement. The following data are for the year ended December? 31,2014?:
Beginning inventory, January 1, 2014: 90,000 units
Ending inventory, December 31, 2014: 32,000 units
2014 sales: 429,000 units
Selling price (to distributor): $21.00 per unit
Variable manufacturing cost per unit, including direct materials: $5.20 per unit
Variable operating (marketing) cost per unit sold: $1.00 per unit sold
Fixed manufacturing costs: $1,766,400
Denominator-level machine-hours: 6,400
Standard production rate 60units per machine-hour
Fixed operating (marketing) costs: $1,050,000
1. Prepare income statements under variable and absorption costing for the year ended December? 31, 2014.
2. What is Gable?'s operating income as percentage of revenues under each costing? method?