Empire Glass Works, manufactures and sells high quality glass bottles for industrial use. The company at present reports profits on marginal costing basis. However, Tom Cuck (the management accountant of Empire Glass Works) is not in support of continuing the use of marginal costing system due to the high fixed costs associated with the glass container industry and a substantial difference between sales volume and production in some months. Tom proposes to the top management that it would be more appropriate for the company to report profits based on absorption costing. Budgeted cost per bottle is as follows: Particulars Direct materials Direct labour Other variable production costs I Amount ($) 8.50 7.00 3.16 Total annual fixed production overhead was budgeted at $5,784,000 and the annual budgeted production was 1,430,000 bottles. However, due to the nature of the demand, the monthly budgeted production from January to April was 25% lower than that of the monthly budgeted production from May to December. The actual fixed overhead cost incurred was as budgeted. Further information: Particulars Bottles sold Bottles produced Selling price per bottle Fixed selling expenses Fixed administrative expenses April 87,000 75,000 $32 $115,000 $75,000 May 135,000 132,000 $32 $115,000 $75,000 The inventore holanan naf 21st of Nu wonn battles Required: (a) Prepare income statements for the months of April and May as per absorption costing. [7 marks] (b) Prepare income statements for the months of April and May as per marginal costing. [7 marks] (c) If you are the management accountant of Empire Glass Works, list three reasons in support your proposal to report profits using absorption costing. [6 marks] I (7 + 7 + 6 = 20 Marks) Peer evaluation to count for 5 marks ee END OF ASSESSMENT