Mowbray Ltd makes and sells one product, the standard costs of which are as follows:

...........................................................................................£
Direct materials (3 kg at £2.50/kg) ............................(7.50)
Direct labour (15 minutes at £9.00/hr) .....................(2.25)
Fixed overheads ..........................................................(3.60)
......................................................................................(13.35)
Selling price ..................................................................20.00
Standard profit margin .................................................6.65

The monthly production and sales are planned to be 1,200 units.
The actual results for May were as follows:

There were no inventories at the start or end of May. As a result of poor sales demand during May, the business reduced the price of all sales by 10 per cent.

Required:
Calculate the budgeted profit for May and reconcile it to the actual profit through variances, going into as much detail as is possible from the information available.

Transcribed Image Text:

Sales revenue 18,000 Direct materials (7,400) (2,800kg) (2,300) (255 hr) (4,100) 4,200 Direct labour Fixed overheads Operating profit