Zemanova plc makes wooden chicken coops and its sales are very seasonal.Zemanova's production manager Veronika is trying to prepare budgets for next year.For this purpose she divides the year into two six-monthly periods, to allow for holidays and seasonal sales.The variable production cost of a coop is as follows, based on a budgeted production level of 50,000 coops per annum.

Variable materials40.00

Variable labour (5 hours)60.00

Variable overheads8.00

Fixed production costs are budgeted to be 900,000 per annum. In addition to the production costs, sales commission of 20% of selling price is paid on each coop sold.The selling price is 250.Fixed selling and distribution costs amount to 1,500,000 per annum.

Sales and production figures are budgeted as follows.

January to June July to December

Coops sold050,000

Coops produced30,00020,000

There will be no opening inventory in January. Fixed costs are incurred evenly throughout the year.

Requirements:

(a) Prepare income statements, clearly showing inventory values for each six monthly period using

(i)marginal costing

(ii)absorption costing.(14 marks)

(b) prepare a statement which reconciles the income for each six monthly period calculated in