QUESTION 2 Xcellent Company manufactures large battery cells for use primarily in heavy industries. The firm has grown rapidly in recent years because of the product's low price and high quality. However, sales have declined for two consecutive years due to increased competition. The firm is concerned about the decline in sales and has hired a consultant to analyse the firm's profitability. The consultant was provided the following information. 2021 2022 Sales (units) 2,800 2,500 Production (units) 3,000 3,000 Beginning inventory (units) 200 Data per unit (all variable): Price RM2,000 RM1,900 Direct materials and labour RM1,200 RM1,200 Selling costs RM100 RM100 Total fixed costs: Manufacturing overhead RM600,000 RM600,000 Selling and administrative RM100,000 RM50,000 Top management at Xcellent Company, explained to the consultant that a difficult business environment for the firm in 2021 and 2022 had caused the firm to reduce its price and fixed selling and administrative costs in response to the decline in sales. Even with the price reduction, there was a decline in sales in 2022 and this has led to an increase in inventory. 3 (b) Calculate the unit product cost and prepare an income statement for 2022 using absorption costing and variable costing. Reconcile the difference of the operating income resulting from the absorption and variable costing methods. (10 marks) (c) Explain the changes in operating income between variable costing and absorption costing (4 marks)