The budget of S Ltd provides for the manufacture and sale of 10000 spodgets per month, the unit standard cost being $6, made up:

$

Direct material 3.5 Direct labour 0.5 Fixed overhead 2.0 The selling price of the spodget being $8.0 Production and sales quantities for period 1 and 2 were:

Production Sales REQUIRED 1

10000 8000 PERIOD 2

10000 12000

(a) Prepare operating statements for each of the two periods, assuming:

(i) the company uses marginal costing

(ii) absorption costing is used

(b) Comment on the differences of the two system as regards:

(ii) stock valuation

(ii) periodic profit