Prism Glass Works, manufactures and sells high quality glass bottles for industrial use. The company at present reports profits on an absorption costing basis. However, Tom Cuck (the management accountant of Prism Glass Works) is not in support of continuing the use of absorption 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 marginal costing. In his proposal to management, Tom lists the following reasons in support of this proposal:

1. Marginal costing provides for the complete segregation of fixed costs, thus facilitating closer control of production costs.

2. It eliminates the distortion of interim profit statements which occur when there are seasonal fluctuations in sales volume although production is fairly constant.

3. It results in cost information which is more helpful in determining the sales policy and profit planning.

Required:

Assess and comment briefly on Toms three reasons which he listed to support his proposal to report profits using marginal costing.