James Ltd opened a plant for making spare parts on January 1. Data for the first two months operations are shown below.

	January (units)	February (units)
Units started in month	3,900	2,700
Units completed (all sold)	2,400	2,400
Closing work in progress	1,500	1,800
Variable costs:	Rupees	Rupees
Material	58,500	48,600
Labour	36,000	21,000
Fixed costs	63,000	63,000
Sales Revenue	112,800	120,000

January 31 the units were 100 percent complete for materials and 80 percent complete for labour in closing work in progress. February 28, the units in closing work in progress were 100 percent complete for materials and 50 percent complete for labour. The company’s policy for valuation of work in progress in under review.

The board of directors decided that two alternative profit and loss statement should be prepared for January and February. One statement would value work in progress on a weighted average cost basis and the other would adopt a first in first out basis. Fixed costs would be absorbed in proportion to actual labour costs in both cases. For both bases gave same value of closing work in process as well as profit. When the statements for February were presented to the board the following suggestions were made:

• We would not have a problem over the valuation basis if we used standard costs.
• It would be simpler and more informative to go to a direct cost valuation basis for management use.

Required:

1. Prepare profit and loss statements for November on two alternative bases decided by the board of directors showing calculations of cost of production report.

2. Explain with supporting calculations the differences between the results shown by each statement you have prepared.