HGW Limited produces a product called a Lexton. The standard selling price and the manufacturing costs of this product are as follows:

The projected production and sales for March 20X4 were 520 units.

On 1 April 20X4 the following actual figures were determined.

There was no opening stock of the product Lexton.

Required:

(a) Prepare an actual profit and loss statement for HGW Ltd for March 20X4

(b) Calculate the following variances and their respective sub-variances:

(i ) sales – price and volume

(ii ) direct materials – price and usage

(iii ) direct labour – rate and efficiency

(c) Prepare a statement reconciling the actual profit calculated in part (a) with the budgeted profit on actual sales. (Use the variances calculated in part (b) and the given overhead variance.)

(d) Write a report to the management outlining the factors that need to be considered when standards are being established.

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Standard selling price per unit Standard production costs: Direct material Direct labour Variable overheads 1.5 kilos at £12 per kilo 4.4 hours at £7.50 per hour 4.4 hours at £5 per hour E 86 18 33 22 73