Uno Direction has another subsidiary division called Handy Direction which manufactures trendy, low-quality and overpriced handbags (that look like very similar to Chanel branded bags). You have been asked to recommend a method of inventory costing to be used when preparing the income statement. The following data is for the year ended December 31, 2020:

Beginning inventory, Jan 1 2020 (units)	80,000
Ending inventory, Dec 31, 2020 (units)	30,500
2020 Sales	340,000
Selling price	$20.00
Variable manufacturing cost per unit	$5.00
Variable operating cost per unit	$1.50
Fixed manufacturing costs	$140,000
Denominator level machine (hours)	7,000
Standard production rate (units per machine-hour)	50
Fixed operating costs	$106,000

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 in the month in which it occurs.

Required:

a) Prepare an income statement under the absorption method for the year ended December 31, 2020.

b) Prepare an income statement under the variable method for the year ended December 31, 2020.

c) Explain the difference between the two methods. Would you recommend variable costing or absorption costing as a source of information?