exercise3.1 - AC2720 Module 3 Cost Estimation Techniques...

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AC2720: Module 3 Cost Estimation Techniques Exercise 3.1 Variable vs. Absorption Costing 1 There are two problems in this assessment. You need to complete both the problems. Problem 1: Variable versus Absorption Costing 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 CFO will use your recommendation to prepare Zwatch’s 2014 income statement. The following data are for the year ended December 31, 2014: Beginning inventory, January 1, 2014 85,000 units Ending inventory, December 31, 2014 34,500 units 2014 sales 345,400 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 $1.10 per unit sold Fixed manufacturing costs $1,440,000 Denominator-level machine-hours 6,000 Standard production rate 50 units per machine-hour Fixed operating (marketing) costs $1,080,000
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