(Marginal Costing) Shedworld Ltd manufactures garden sheds. The company has always used an absorption costing system, but at a recent conference the Managing Director discovered that many businesses use a variable costing system for internal reporting purposes. The Managing Director is unclear on the differences between absorption costing and variable costing and accordingly is seeking your advice. Shedworld makes substantially more sales in the spring and summer months which involves building up stocks in the early months of the year. The Managing Director has presented you with the following information regarding the company's activities in 2019 Budgeted information for 2019 Per unit Direct materials........ 4 metre * 9 per metre Direct labour........ 2 hours * 10 per hour Variable manufacturing overhead 15 Variable selling overhead....... Budgeted fixed overheads for 2019 Manufacturing....... 100,000 Selling....... 145,000 The normal expected production volume per annum is 10,000 units. 8 Actual production for 2019 amounted to 10,600 units. The sales volume achieved for the year was 11,500 units with a unit selling price of 200. The actual fixed manufacturing overhead was 130,000 and fixed selling overhead was 145,000. All variable costs per unit were incurred as budgeted. The opening stock of finished goods at 19 Jan 2019 consisted of 3.000 units valued at 260,000 which included 30,000 with respect to fixed manufacturing overhead. Requirement (a) Prepare an operating profit statement for Shedworld for 2019 using (i) Absorption costing (ii) Marginal/variable costing (b) Referring to (a) above reconcile the operating profit as shown in the absorption costing statement and the marginal costing statement. (c) Write a brief memo Advising the Managing Director as to the potential advantages and disadvantages of adopting marginal costing profit statements for internal purposes compared to absorption costing and give your advice whether you believe marginal costing would be suitable for Shedworld