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 Revenues Variable cost of goods sold: Variable manufacturing costs Beginning inventory Cost of goods available for sale Deduct ending inventory Variable cost of goods sold Variable operating costs Operating income (loss) III Data Table 82,000 units 34,500 units 355,000 units $24.50 per unit 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 $5.10 per unit $1.50 per unit sold $1,550,000 6,200 50 units per machine-hour $1,060,000 > 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? 3. Explain the difference in operating income between the two methods. 4. Which costing method would you recommend to the CFO? Why