Question 3 (23 marks) Nancy Inc., a manufacturing firm, is able to produce 1,500 T-shirts per hour, at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable operating interruptions, production averages 1,200 units per hour and on average half an hour maintenance is required in each shift. The plant actually operates only 25 days per month. Based on the year 2020 budget, Nancy estimates that it will be able to sell only 625,000 units per month this year due to the entry of a competitor with aggressive marketing capabilities. However, the demand is unlikely to be affected in future and will be around 650,000 per month in the long run. Assume a calendar year of 360 days and 30 days per month. Required (a) Determine the budgeted capacity level (in units) under: (i) Theoretical capacity (ii) Practical capacity (iii) Normal capacity utilization (iv) Master-budget utilization (2 marks) (2 marks) (2 marks) (2 marks) (b) Additional information regarding the costs of the company are given: Manufacturing costs Variable cost per unit Budgeted fixed manufacturing overhead per year $25 $32,400,000 Selling and administrative costs Variable cost per unit Total fixed cost $5 $5,000,000 Actual production in 2020 Actual Sales in 2020 Selling price Actual fixed manufacturing overhead in 2020 7,600,000 units 7,000,000 units $50 per unit $32,000,000 The practical capacity level is used to calculate the budgeted fixed manufacturing cost per unit. There are no variable cost variances. Fixed manufacturing overhead cost variances are written off to cost of goods sold in the period in which they occur. There has been no beginning inventory in 2020. Prepare the income statement for the year ended 31 December 2020 using: (i) Absorption costing. (ii) Variable costing. (9 marks) (6 marks)