Variable costing and absorption costing, the Z $-$ Var Corporation. $($R$.$ Marple, adapted$)$ It is the end of $2017.$ Z Var Corporation began operations in January $2016.$ The company is so named because it has no variable costs $($Zero VARiable$).$ All its costs are fixed; they do not vary with output. Var 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 The company uses budgeted production as the denominator level and writes off any production volume variance to cost of goods sold. fZ Var $20162017$a $30,000$ tons $30,000$ tons $60,000$ tons tons Sales Production Selling price Costs $($all fixed$)$: Manufacturing $90$ per ton $90$ per ton $ $2,580,000$ $ $102,000$ $ $2,580,000$ $ $102,000$ Operating $($nonmanufacturing$)$ to fill sales orders. During $2017,$ sales were the same as for $2016$ and were filled entirely from inventory at Management adopted the policy, effective January $1,2017,$ of producing only as much product as needed the start of $2017.1.$ 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? $4.$ Assume that the performance of the top manager of Z Var is evaluated and rewarded largely on the basis of reported operating income Which costing method would the manager prefer?

Why?