The Company manufactures trendy, high-quality, moderately priced watches. As 's senior financial analyst, you are asked to recommend a method of inventory costing. The chief financial officer (CFO) will use your recommendation to prepare 's income statement. The following data are for the year ended December 31, :

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 chief financial officer (CFO) will use your recommendation to prepare Zwatch's 2020 income statement. The following data are for the year ended December 31, 2020: (Click the icon to view the data.) (Click the icon to view the assumptions.) Read the requirements Requirement 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. Begin by preparing the income statement under variable costing for the year ended December 31, 2020. Complete the top half of the income statement first, then complete the bottom portion. Variable costing $ 6,446,000 Revenues Variable cost of goods sold: Beginning inventory $ 425,000 1,230,000 Variable manufacturing costs Cost of goods available for sale 1,655,000 (190,000) Deduct ending inventory Variable cost of goods sold 1,465,000 293,000 Variable operating costs Contribution margin Fixed manufacturing overhead costs 4,688,000 1,264,800 Fixed operating costs 1,090,000 $ 2,333,200 Operating income (loss) Now prepare the income statement under absorption costing for the year ended December 31, 2020. Complete the top half of the income statement first, then complete the bottom portion. (Label any variances as favorable (F) or unfavorable (U).) Absorption costing Revenues 6446000 Cost of goods sold: Beginning inventory Variable manufacturing costs 858500 1230000 1254600 Allocated fixed manufacturing costs Cost of goods available for sale 3343100 Deduct ending inventory 383800 Adjustment for production-volume variance Cost of goods sold II Gross margin - Data table Beginning inventory, January 1, 2020 Ending inventory, December 31, 2020 2020 sales Selling price (to distributor) Variable manufacturing cost per unit, including direct materials Variable operating (marketing) cost per unit sold Fixed manufacturing costs Denominator-level machine-hours Standard production rate Fixed operating (marketing) costs 85,000 units 38,000 units 293,000 units $22.00 per unit $5.00 per unit $1.00 per unit sold $1,264,800 6,200 40 units per machine-hour $1,090,000 Assumptions 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. - Requirements 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. 2. What is Zwatch's operating income as percentage of revenues under each costing method