The budgeted selling price and standard cost of a unit manufactured by Smillie Limited is as follows:

£

Selling price ...............30

Direct materials (2.5 kilos) .......... 5

Direct labour (2 hours) ...........12

Fixed production overhead .......... 8

25

Budgeted profit ............. 5

Total budgeted sales: 400 units

During the period to 31 December 2012, the actual sales and production details for Smillie were as follows:

£

Sales (420 units) ............13440

Direct materials (1260 kilos) ........ 2268

Direct labour (800 hours) ........ 5200

Fixed production overhead ........ 3300

10768

Profit ................ 2672

Required:

(a) Prepare a standard cost operating statement for the period to 31 December 2012 incorporating as many variances as the data permit.

(b) Explain what the statement tells the managers of Smillie Limited.