Variance analysis and reconciliation of budgeted and actual profit

The Perseus Co. Ltd, a medium-sized company, produces a single produce in its one overseas factory. For control purposes, a standard costing system was recently introduced and is now in operation.

The standards set for the month of May were as follows:

Production and sales
Selling price (per unit)	140
Materials
Material 007	6 kilos per unit at
	12.25 per kilo
Material XL90	3 kilos per unit at
	3.20 per kilo
Labour	4.5 hours per unit at
	8.40 per hour

Overheads (all fixed) at 86 400 per month are not absorbed into the product costs.

The actual data for the month of May, are as follows:

Produced 15 400 units, which were sold at 138.25 each.

Materials

Used 98 560 kilos of material 007 at a total cost of 1 256 640

Used 42 350 kilos of material XL90 at a total cost of 132 979

Labour

Paid an actual rate of 8.65 per hour to the labour force. The total amount paid out amounted to 612 766

Overheads (all fixed) 96 840

Required:

(a) Prepare a standard costing profit statement, and a profit statement based on actual for the month of May.

(b) Prepare a statement of the variances which reconcile the actual with the standard profit or loss .

(c) Explain briefly the possible reasons for inter-relationships between material variances and labour variances.

Answer rating: 100% (QA)

a Standard Costing Profit Statement and Actual Profit Statement for May Standard Costing Profit Statement Sales Revenue 15400 units 140 per unit 2156000 Standard Costs Materials Material 007 15400 uni... View the full answer