Required:

a) Prepare a profit statement for the two periods Jul - Dec 2021 and Jan - Jun 2022 using:

i. Marginal Costing

ii. Absorption Costing

(18 marks)

b) Prepare a statement that reconciles the differences between net profit from the marginal costing statement and adjusted profit from the absorption costing statement. Give reasons for the variance in profits.

(4 marks)

c) Explain in which circumstances each of the costing methods from (a) and (b) should be used and the benefits of each method.

(3 marks)

Babybox Ltd in Newcastle is a mannl'aemrer of organic stock cuhen ItapeciallvI made for consumption by babies from the age of 1 year. For each box of cubes. they charge 1.50. Normal demand is projected to be [00,000 boxes per year. The material cost per box is 2.68. and the labour east is 6 per labour hour. It takes 30 minutes to produce one box ofeuhEs. Fitted production overheads are 30,000 per annum. and xed administration costs are 105 per month. There are also some variable overheads which total 0.40 per box. These variable overheads can he split as 55% production-related overheads and 45% selling overheads. the latter incurred at the point of sale. Production ofthe cubes is constant all year round. but Bahybox Ltd learned that there is a higher demand in the rst half of the year. This is reected in their planned production schedule as stated below: Boles prudlleed "15,000 50.0\"] '[he stock-take on June 30, 2021 showed that l0,000 boxes were in stock. Management of Bahybox Ltd has requested that the hi-anmral prot statements for the next year he calculated using both marginal and absorption costing principles in order to allow for an adjustment of planning, if necessary