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