The Klocka Company manufactures trendy, high-quality, moderately priced watches. As Klocka'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 Klocka's 2020 income statement. The following data are for the year ended December 31, 2020: (Click the icon to view the data.) (I) (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. 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. Data table Beginning inventory, January 1, 2020 89,000 units Ending inventory, December 31, 2020 30,000 units 2020 sales 299,000 units Selling price (to distributor) $24.50 per unit Variable manufacturing cost per unit, including direct materials $5.10 per unit Variable operating (marketing) cost per unit sold $1.50 per unit sold Fixed manufacturing costs $1,171,200 Denominator-level machine-hours Standard production rate 40 units per machine-hour Fixed operating (marketing) costs $1,120,000 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. Requirements 1. Prepare income statements under variable and absorption costing for the year ended December 31, 2020. 2. What is Klocka'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