1. The following data has been extracted from the following budgets and standard costs of Storm Limited, a company which manufactures and sells two products J & K.

Storm cost and revenue

Per unit

Item	J	K
Selling Price	45	100
Direct materials costs	10	18
Direct wages costs (variable)	4	6
Variable overhead cost	2.50	3
Machine hours	2 hours	3 hours

Fixed production overhead costs are budgeted at 2,000,000 per quarter. Normal production is planned to be 500,000 machine hours per quarter.

Budgeted selling and distribution costs are as follows:

Variable 1.50 per unit sold

Fixed 800,000 per quarter

Budgeted administration costs are 1,200,000 per quarter. The company allocates production overheads to products based on machine hours.

The following pattern of sales and production is expected during the first six months of the year:

Production is higher than sales in order to meet seasonal demand in July September.

	January March	April June
Sales (units)	J 80,000	J 70,000
	K 90,000	K 80,000
Production (units)	J 110,000	J 110,000
	K 120,000	K 130,000

There is no stock on January 1^st

You should assume that actual fixed costs for the two quarters were the same as budgeted fixed costs.

Required:

1. Prepare profit statements for each of the two quarters, in a columnar format, using:

1. marginal costing
2. absorption costing

2. Reconcile the profits reported for each quarter in your answer to (a) above.

(c) State and explain briefly why companies might decide to use marginal costing as the basis of management reporting.

2. Compare and contrast the different worldviews on which ABC and Throughput Accounting are based.