A Reed Ltd manufactures three products A, B and C. Budgeted costs and selling prices for the three months ending 30 September 2012 are as follows:

\begin{tabular}{lccc}

& A & \multicolumn{1}{c}{ B } & \multicolumn{1}{c}{} \\

Sales (units per month) & 6,000 & 8,000 & 5,000 \\

Selling price per unit & $£$ & $£$ & $£$ \\

Unit costs & 45 & 44 & 37 \\

Direct labour & & & \\

Direct materials Authors' note & & 9 & 6 \\

Variable overhead & 20 & 24 & 16 \\

Fixed overhead & 4 & 3 & 2 \\

& 5 & 5 & 6

\end{tabular}

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.
\section*{Required:}
A A statement to show the maximum net profit for the three months ending 30 September 2012, 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.
(Reproduced with the kind permission of OCR - University of Oxford Delegacy of Local Examinations: GCE A-level)
Authors' note: Assume that the materials used in each product are of the same kind.