A Vale Manufacturing started in business on 1 April 2011, and incurred the following costs during its first three years.

\begin{tabular}{lccc}

Year ending 31 March & 2012 & 2013 & 2014 \\

Direct materials & $£$ & $£$ & $£$ \\

Direct labour & 60,000 & 49,900 & 52,200 \\

Variable overheads & 48,000 & 44,000 & 45,000 \\

Fixed costs & 24,000 & 30,000 & 40,000 \\

Sales during the first three years were all at $£ 20$ per unit. & 40,000 & 40,600 & 41,300 \\

Production each year (units) & & & \\

Sales each year (units) & 16,000 & 14,000 & 14,000 \\

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\end{tabular}

\section*{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.

(Reproduced with the kind permission of OCR - University of Oxford Delegacy of Local Examinations: GCE A-level)