Exhaust size for small block?

What intake is that? A single or dual plane? If it's a single plane it's another problem added to being over cammed and over geared. You need a dual plane for that little engine. 2-1/2" exhaust would probably be better for you also but 3" isn't going to kill things.

Also never take those computer dyno's as THE WORD. You have to input every parameter exactly perfect for them to be close to right. Then the engine needs dyno tuned also to get every bit out of it. Then a dyno program has a chance of being right.

BTW: That 727 IS a stronger and better transmission than a 904 but it will suck even more power out of your engine due to more rotating mass. When I say it is stronger that doesn't mean the 904 is a weak transmission by any means and in your case I'd do my best to find another 904 to put back in it rather than use a 727.