Zorro Company had the following operating data: Variable Cost per Unit:

Direct Materials $3.81

Direct Labor 2.68

Variable Overhead 1.59

Fixed Cost per Year:

Overhead 194,000

Selling and Administrative 69,883 The data above covers the first two years of operations for this company. Zorro produced 75,000 units in the first year and sold 69,000. In the second year, it produced 43,000 and sold 47,000 units. The selling price per unit each year was $18. Zorro uses an actual costing system for product costing. Part A Prepare income statements for both years using absorption costing. Has firm performance, as measured by income, improved or declined from Year 1 to Year 2? Hint: you can create a column in the same income statement for each year. Part B Prepare income statements for both years using variable costing. Has firm performance, as measured by income, improved or declined from Year 1 to Year 2? Hint: you can create a column in the same income statement for each year. Part C Which method do you think most accurately measures firm performance? Why?