TOYS and TOYS Ltd. Is a firm that produces stuff toys at the Montego Bay Free Zone?Details of the expected number of stuff toys to be produced and sold for the last two months of the calendar year 2013 are budgeted as follows:

Month ending November 30, 2013month ending December 31, 2013

Production13,00015,000

Sales12,00016,000

The selling price is $70.00 and the standard production cost per toy is as follows:

Direct Material$14.00

Direct Labour$ 9.00

Variable Production overhead$ 3.00

Fixed Production Overhead$10.00

Total cost$36.00

Normal output is 56,000 units per annum and this amount is used for the calculation of the actual fixed production overhead.Fixed production overhead accounts for the only production overhead variance.

Fixed overhead expenditure and the production of stuff toys are spread evenly throughout the year.

There should be no finished toys at September 1, 2013

Marketing and administrative cost are as follows:

Variable15% of sales revenue

Fixed$480,000 per annum

Required:

1. Prepare the income statements for the months ending November 30, 2013 and December 31, 2013 on the basis of Marginal costing.(15 marks)
2. Explain briefly the situations in which marginal costing aids in decision making.