9-25 Variable versus absorption costing. The Zeta Company manufactures trendy, good-looking, moder- ately priced umbrellas. As Zeta's senior financial analyst, you are asked to recommend a method of inven- tory costing. The CFO will use your recommendation to prepare Zeta's 2020 income statement. The following data are for the year ended December 31, 2020: Beginning inventory, January 1, 2020 100,000 units Ending inventory, December 31, 2020 50,000 units 2020 sales 400,000 units Selling price (to distributor) S 25 per unit Variable manufacturing cost per unit, including direct materials S 6 per unit Variable operating (marketing) cost per unit sold S 2 per unit sold Fixed manufacturing costs Denominator-level machine-hours $1,625,000 6,500 Standard production rate Fixed operating (marketing) costs 50 units per machine-hour $1,100,000 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. 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. 2. What is Zeta'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?