HB Corporation in Delaware, U.S., makes and sells a single product. The company operates a standard costing system and a just-in-time purchasing and production system. No inventory of raw materials or finished goods is held. Details of the budget and actual data for the previous period are given below:

Budget data

Standard production costs per unit (currency in U.S. dollar, $):

Direct material 8kg @$10.80 per kg 86.40

Direct labor 1.25 hours @$18.00 per hour 22.50

Variable overheads 1.25 hours @$6.00 per direct labor hour 7.50

Standard selling price: $180 per unit

Budgeted fixed production overheads: $170 000

Budgeted production and sales: 10 000 units

Actual data

Direct material: 74 000kg @$11.20 per kg

Direct labor: 10,800 hours @$19.00 per hour

Variable overheads: $70,000

Actual selling price: $184 per unit

Actual fixed production overheads: $168 000

Actual production and sales: 9000 units

Requirements

1. Prepare a statement using marginal costing principles that reconciles the budgeted profit and the actual profit. Your statement should show the variances in as much detail as possible. (10%)

2. Explain why the variances used to reconcile profit in a standard costing system are different from those used in a standard absorption costing system. (10%)

3. Calculate the variances that would be different and any additional variances that would be required if the reconciliation statement was prepared using standard absorption costing. (10%)

4. Explain the arguments for the use of traditional absorption costing rather than marginal costing for profit reporting and inventory valuation. (10%)