Best Bakery Limited manufactures one product, nutricake. For the month of January 2022, the following information is available:

		units
Number of nutricake produced		4,000
Number of nutricake sold		3,000
Selling for each nutricake	$8.00
Direct materials for the month	$5,000
Direct labour for the month	$9,000
Fixed production overhead for the month	$6,000

There was no finished stock at the start of the month. Both direct materials and direct labour behave as variable costs.

You are required to

1. Define marginal and absorption costing. (3 marks)

2. prepare profit statements using the

1. Marginal costing approach (6 marks)
2. Absorption costing (traditional) approach (6 marks)

3. Reconcile the profits between absorption costing and marginal costing for the month of January. (6 marks)
4. Outline 3 differences between marginal costing and absorption costing. (3 marks)

5. State 3 arguments for marginal costing (3 marks)
6. State 3 arguments for absorption costing (3 marks)