It is the end of 2017. Thurgood All - Fixed Corporation began operations in January 2016. The company is so named because it has no variable costs. All its costs are fixed; they do not vary with output. Thurgood All - Fixed Corp. is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations of Thurgood All - Fixed. Requirement 1. Prepare income statements with one column for 2016, one column for 2017, and one column for the two years together using (a) variable costing and (b) absorption costing. (Use parentheses or a minus sign for an operating loss.) Start by preparing the (a) variable costing income statement for 2016, 2017, and the two year total. 2016 Data table Revenue Fixed costs: The company uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold. Manufacturing costs Operating costs 2016 2017 Total fixed costs Sales 30,000 tons 30,000 tons Operating income (loss) Production 60.000 tons 0 tons Selling price $125 per ton $125 per ton - X Requirements Costs (all fixed): Manufacturing $3,180,000 $3,180,000 Operating (nonmanufacturing) $105,000 $105,000 1. Prepare income statements with one column for 2016, one column for 2017, and one column for the two years together using (a) variable costing and (b) absorption costing. 2. What is the breakeven point under (a) variable costing and (b) absorption costing? 3. What inventory costs would be carried in the balance sheet on December 31, 2016 and 2017, under each method? (a) Management adopted the policy, effective January 1, 2017, of producing only as much product as needed to fill sales orders. During 2017. sales were the same as for 2016 and were filled entirely from inventory at the start of 2017. 4. Assume that the performance of the top manager of Thurgood All - Fixed is evaluated and rewarded largely on the basis of reported operating income. Which costing method would the manager prefer? Why?