Peter Ltd manufactures and sells batteries. The cost data for the product are given below. The accountant told the President that he will prepare two different sets of income statements for the President's review. The data are given as follows: The batteries sells for $40 per unit. Production and sales data for January are shown below. Required: a. Prepare the absorption costing income statement. (4 marks ) b. Prepare the variable costing income statement. (4 marks) c. Explain to the President the differences between the two income statements (if any) and the net income figures he should rely on. (3 marks) Part B PINK Ltd produces traditional equipment, known as product A, which is sold for $40. The total variable cost is 60% of sales. Last year, the company sold 65,000 units and the total fixed cost was $480,000. Management is anxious to maintain and even improve the present level of income. Required: a. Compute the CM ratio and breakeven points in dollars. (2 marks) b. Compute the operating leverage at last year's level of sales. (3 marks) c. The company is considering to construct a new, automated plant to manufacture the products. The new plant will slash variable costs by 40%, but it would cause fixed cost to increase by 80%. How many units the company has to sell next year in order to earn the same operating income as last year? (3 marks) d. Assume the new plant is built and the company still sell 65,000 units next year, re-compute the operating leverage based on the information in part c (hint: you need to recalculate the operating income) and compared with the operating leverage figure in part b and explain if the company should use the new cost structure or not. (4 marks)