Question 3 (30 marks) On Tai Company (On Tai) manufactures and sells a single product, called 'Bravo', which is a very popular type of office desk. Actual data relating to the year end 30 June 2020 are as follows: Unit data Beginning inventory Ending inventory Sales 3,000 3,300 77,000 Variable costs Manufacturing cost per unit produced Marketing cost per unit sold $640 $20 Fixed costs Manufacturing overhead costs $4,800,000 Marketing costs $1,920,000 On Tai computes the fixed overhead rate based on the practical capacity of 120,000 units per year. There is no price, efficiency, or spending variances. Any production- volume variance is written off to cost of goods sold in the month in which it occurs. The selling price per 'Bravo' is $960 per unit. Required: (a) Prepare the 2020 product line income statement of 'Bravo' under: (12 marks) i. variable costing ii. absorption costing (6) Explain the difference in operating income under variable costing (4 marks) and absorption costing (c) On Tai uses absorption costing to evaluate its financial (6 marks) performance. The management is recently debating among various concepts of capacity for calculating the cost of each unit produced. Apart from the practical capacity, which is being used currently, they are also considering the following: Theoretical capacity Normal capacity utilization 160,000 units 80,000 units (averaging expected output for the next three years) 64,000 units expected production for 2020 Master-budget capacity utilization Calculate the inventoriable cost per unit using each of the above three capacity levels. For the purposes of product costing and capacity management, which of the capacity levels (theoretical, practical, normal capacity utilization and master-budget capacity utilization) is more appropriate? From the financial perspective, all accounting information has been (8 marks) recorded in our accounting system, so we have sufficient data to make all decisions.' (d) Comment on the statement above. Illustrate your answer with one example