Manufacturing Operations The manufacturing department uses marginal costing methods in determining the unit costs of the products. The accounting department prepares the inventory records using a...

Manufacturing Operations The manufacturing department uses marginal costing methods in determining the unit costs of the products. The accounting department prepares the inventory records using a costing method based on materials purchased and disregards manufacturing overhead costs in the calculations. The following was an extract from the drafted financial statements prepared by Mr. Rajah Singh: "Accounting Policies: Inventory - inventory consists of raw materials, work-in-progress and finished goods which are measured at the marginal costing method and cost excluding production overheads using the Last-in-first-out method."

 (a) Provide a critique of the accounting policy for inventory included in the financial statements by Mr. Rajah Singh in terms of the financial reporting standards.

 (b) Discuss the principal differences between the marginal costing and absorption costing methods of valuing inventory in a manufacturing business.

(c) Discuss the impact of using the marginal costing method of valuing inventory on the financial performance and financial position of the business.