Paul Wagtail started a small manufacturing business on 1 May 2011. He has kept his records on the double entry system, and has drawn up a trial balance at 30 April 2012 before attempting to prepare his first final accounts.

\section*{Extract from the Trial Balance of Paul Wagtail at 30 April 2012}

\begin{tabular}{lrr}

\hline & 125,000 & $£$ \\

Purchases of raw materials & & 464,360 \\

Sales & 23,800 & \\

Selling expenses & 4,800 & \\

Insurance & 19,360 & \\

Factory repairs and maintenance & 1,500 & \\

Carriage on raw materials & 3,600 & \\

Heating and lighting & 12,430 & \\

Direct factory power & 25,400 & \\

Distribution expenses & 105,270 & \\

Production wages & 29,600 & \\

Factory supervisor's wages & 46,700 & \\

Administration expenses & 88,000 & \\

Plant and machinery at cost & 88,000 & \\

Delivery vehicles at cost & & 2,100

\end{tabular}

At 30 April 2012, he has closing inventory of raw materials costing $£ 8,900$. He has manufactured 9,500 completed units of his product, and sold 8,900 . He has a further 625 units that are $80 \%$ complete for raw materials and production labour, and also $80 \%$ complete for factory indirect costs.

He has decided to divide his insurance costs and his heating and lighting costs $40 \%$ for the factory and $60 \%$ for the office/showroom.

He wishes to depreciate his plant and machinery at $20 \%$ p.a. on cost, and his delivery vehicles using the reducing balance method at $40 \%$ p.a.

He has not yet made up his mind how to value his inventories of work in progress and finished goods. He has heard that he could use either marginal or absorption costing to do this, and has received different advice from a friend running a similar business and from an accountant.

\section*{Required:}

(a) Prepare Paul Wagtail's manufacturing account and income statement for the year ending 30 April 2012 using both marginal and absorption costing methods, preferably in columnar format.

(b) Advise Paul Wagtail of the advantages and disadvantages of using each method.