Vale Manufacturing started in business on 1 April 2015, and incurred the following costs during its first three years.

Required:
(a) Prepare a statement showing the gross profit for each of the three years if the company used:
(i) The marginal costing approach to valuing inventory;
(ii) The absorption costing approach to valuing inventory.
(b) Advise the company of the advantages and disadvantages of using each method.

Transcribed Image Text:

Year ending 31 March Direct materials Direct labour Variable overheads Fixed costs Sales during the first three years were all at £20 per unit. Production each year (units) Sales each year (units) 2016 £ 60,000 48,000 24,000 40,000 16,000 14,000 2017 £ 49,900 44,000 30,000 40,600 14,000 14,000 2018 £ 52,200 45,000 40,000 41,300 14,000 15,000