Flipside Ltd manufactures a single-size lubrication unit for use in wind turbines etc. It operates a standard absorption costing system and uses variance analysis to control its operations. The figures below refer to the year just ended.

The standard selling price used in the original budget is £150. However, due to increased competition, this was reduced to £139 with effect from the first day of the year. (This revised price remained in operation throughout the year.)

Tasks:
1.  Calculate all possible variances from the above information in as much detail as possible.
2.  Create a statement reconciling the original budget profit (before all other overheads, e.g. marketing, administration) to the actual profit.
3.  Comment on your findings.

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Original budget (10,000 items) Actual results (11,000 items) Standard costs (1 item) Production costs: 5 kg @ £2.00/kg 10 kg @ £4.00/kg 2 hrs @ £15.00/dlh 2 hrs @ £3.00/dlh 2 dlh @ £7.00/dlh Material A Material B 66,000 kg @ £1.50/kg 99,000 kg @ £5.00/kg 20,900 dlh @ £16.00/dlh 20,900 dlh @ £3.00/dlh 20,900 dlh @ £7.50/dlh 400,000 Direct labour Variable overhead 300,000 60,000 140,000 Fixed overhead