1. Provide a 2020 income statement using the existing absorption costing system. 2. Provide the 2020 income statement using the variable costing system. 3. Explain whether you agree with James Lee. Illustrate your answer with examples.

Tung Ching Company (Tung Ching) manufactures a coffee machine. The company adopts an absorption-costing system based on standard costs. The variable manufacturing cost consists of the following: Direct material cost $3.50 per unit Other variable manufacturing cost $1.50 per unit Standard production rate is 20 units per machine-hour. Budgeted and actual fixed manufacturing overhead costs are $960,000. Budgeted capacity utilization is 60,000 machine hours. Sales in 2020 were 1,050,000 units at selling price $10.00 per unit. Non-manufacturing variable operating cost is $2.00 per unit sold. Non-manufacturing fixed operating costs are $200,000. Beginning inventory in 2020 is 50,000 units; ending inventory is 80,000 units. The same standard unit costs were applied in 2019 and 2020. There are no price, spending, or efficiency variances. The company writes off production-volume variance to cost of goods sold. The CFO of Tung Ching, James Lee, states that absorption costing system does not provide us with the information about the efficiency of the use of capacity