QUESTION 4 Pandalela Ltd. manufactures high performance swimming goggles in Bomeo. The firm uses an absorption costing system for internal reporting purposes. However, the newly appointed chief management accountant, is highly considering using variable costing. The following data pertain to the firm's operation from 2014 to 2016. 2014 2015 2016 Production and inventory data: Finished-goods inventory (in units), January 1 Actual production (in units) Sales (in units) -0- 50,000 50,000 -0- 50,000 35,000 15,000 50,000 65,000 RM 48 Revenue and cost data, all three years: Sales price per unit Manufacturing costs per unit: Direct material Direct labor Variable manufacturing overhead RM12 RM8 RM4 Budgeted fixed manufacturing overhead is RM12 per unit per year. Variable selling and administration amount to RM4 per goggle. Fixed selling and administration amount cost is RM100,000 per year. The top management has called for a meeting for all managers in one week's time. The new chief management accountant was given the following questions in advance and is asked to provide the answers at the planned meeting. Required: a. Prepare operating income statements for Pandalela Ltd. for its first three years of operations using: i Absorption costing ii. Variable costing (15 marks) b. Explain which statement, absorption or variable costing that managers would prefer and why (by providing an example relating sales and income)? (3 marks) c. When inventory increases, will absorption costing or variable costing income be greater? Why? (3 marks) d. Explain which is more consistent with cost-volume profit analysis, variable or absorption costing and why? (4 marks) TOTAL: 25 MARKS