Pole Ltd. is a manufacturing company, which produces and sells a single product Wada .

Cost	Shs.
Variable manufacturing	45
Fixed manufacturing	35
Variable selling and administration	8
Fixed selling and administration	30
	118

Fixed manufacturing costs per unit are based on a predetermined rate established at a normal activity level of 18,000 production units per period. Fixed selling and administration costs are absorbed into the cost of sales at 20% of the selling price. Under/over recovery of overheads are transferred to the profit and loss account at the end of each period.

The following information has been provided for two consecutive periods:

	Period I	Period II
Sales: (units)	17,000	18,000
Value	Sh 2,550,000	Sh 2,700,000
Variable manufacturing costs	Sh 720,000	Sh 828,000
Variable selling and administration costs	Sh 136,000	Sh 144,000
Fixed manufacturing costs	Sh 640,000	Sh 630,000
Fixed selling and administration costs	Sh 540,000	Sh 540,000
Production (units)	16,000	18,400

Required:

1. Income statements for each of the periods under the full costing method. (5 marks)
2. Income statements for each of the periods under the direct costing method. (5 marks)
3. Reconciliation for each period of the profit/loss obtained under the two methods in (a) and (b) above (4 marks)
4. Briefly explain three arguments in favour of:
   1. The full costing method (3 marks)
   2. The direct costing method (3 marks)