Income Statements and Firm Performance: Variable and Absorption Costing Jellison Company had the following operating data for its first two years of operations: Variable costs per unit: Direct materials 4.00 Direct labor $2.80 Variable overhead 1.50 Fixed costs per year: Overhead 180,000 Selling and administrative 70,900 Jellison produced 90,000 units in the first year and sold 80,000. In the second year, it produced 80,000 units and sold 90,000 units. The selling price per unit each year was $12. Jellison uses an actual costing system for product costing. Required: 1. Prepare income statements for both years using absorption costing. If an amount is zero, enter "0". Jellison Company Absorption-Costing Income Statement For Years 1 and 2 Year 1 Year 2 Sales 960,000 1,080,000 816,000 938,000 Less: Cost of goods sold 144,000 Gross profit 142,000 X 70,500 70,500 X Less: Fixed selling and administrative expenses 73,500 71,500 Operating income Cost of goods sold: Beginning inventory 0 102,000 918,000 X 836,000 Cost of goods manufactured Goods available for sale X 918,000 X 938,000 X 0 Less: Ending inventory 102,000 X 816,000 X 938,000 x Cost of goods sold Has firm performance, as measured by income, improved or declined from Year 1 to Year 2? Improved 2. Prepare income statements for both years using variable costing. If an amount is zero, enter "o". Jellison Company Variable-Costing Income Statement For Years 1 and 2 Year 1 Year 2 Sales 960,000 1,080,000 Less: Variable cost of goods sold 656,000 X 738,000 X Contribution margin 304,000 X $ 342,000 x Less: Fixed overhead 180,000 180,000 Fixed selling and administrative expenses 70,500X 70,500 x 53,500 X $1 91,500 Operating income Variable cost of goods sold: Beginning inventory 0 $ $ 82,000 X 738,000 65,000 X Variable cost of goods manufactured $ 738,000 X $ 738,000 X Goods available for sale 82,000 0 Less: Ending inventory $ 656,000 X $ 738,000 X Cost of goods sold Has firm performance, as measured by income, improved or declined from Year 1 to Year 2? Improved 3. Which method do you think most accurately measures firm performance? Variable Costing X