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Electrical Manufacturers Ltd employs Marginal Costing techniques for internal decision-making purposes. The company is planning to adopt Absorption Costing techniques in all aspects of its financial decision making. You have been presented with the following information that was extracted from the companys records during 2015 for comparison of the financial results obtained from each method:

Sales, production and stock data

Details	Quarter 3	Quarter 4
Sales	6,270 units	6,930 units
Opening stock	550 units	280 units
Closing stock	280 units	350 units
Production	6,000 units	7,000 units

Cost Data

Details	$
Direct materials	200
Direct labour	150
Variable overheads	100
Total	450

The company has a budgeted capacity of 6,600 units and sold one unit of the product for $900. Fixed administrative and selling overheads each quarter were expected to be $450,000 and $300,000 respectively while fixed overheads were budgeted to be equal to fifty percent (50%) of the variable overheads.

Required:

1. The marginal cost per unit of production.
2. The full cost of production per unit.
3. The expected profits for Quarter 3 and Quarter 4 of 2015 if Marginal Costing techniques are adopted.
4. The expected profits for Quarter 3 and Quarter 4 if Absorption Costing techniques are adopted.
5. Explain to management why the two approaches presented different profit figures.
6. Reconcile the differences in profit calculations for each quarter.
7. Explain to management, giving three (3) reasons why you would adopt the absorption costing method for reporting the companys financial information.

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