Reed Ltd manufactures three products A, B and C. Budgeted costs and selling prices for the three months ending 30 September 2016 are as follows:

Labour costs are £3 per hour, and material costs are £4 per kilo for all products. The total fixed costs are of a general factory nature, and are unavoidable.
The company has been advised by its supplier that due to a material shortage, its material requirement for the month of September will be reduced by 15%. No other changes are anticipated.

Required:
A A statement to show the maximum net profit for the three months ending 30 September 2016, taking into account the material shortage for the month of September.
B Explain how the fixed cost element is dealt with in marginal costing and in absorption costing. Briefly explain how this affects any closing inventory valuation.

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Sales (units per month) Selling price per unit Unit costs Direct labour Direct materials Authors' note Variable overhead Fixed overhead A 6,000 £ 45 6 20 4 5 B 8,000 £ 44 9 24 3 5 с 5,000 £ 37 6 16 2 6