17.10 Grindleton Gears Limited is a manufacturing business which uses a standard costing system. If a variance exceeds 5% of the flexed budget total for that item, the management team investigates it, whether it is favourable or adverse. The company’s flexed budget for February 2013 is:

£

Sales 123 470 Direct materials (28 250)

Direct labour (29 900)

Variable production overheads (8 640)

Fixed production overheads (19 780)

Profit 36 900 The management team is presented with the following standard cost operating statement for the month:

Total

£

Original budgeted net profit 30 900 Sales profit volume variance 6 000 Flexed budget net profit 36 900 Other variances Favourable (Adverse)

£ £

Sales price variance 1 030 –

Direct materials price variance – (1 650)

Direct materials quantity variance – (106)

Total £
Direct labour rate variance – –
Direct labour efficiency variance 200 –
Variable overhead variance 1 400 –
Fixed overhead variance 339 –
Total 2 969 (1 756) 1 213 Actual profit 38 113 Required:
i) using the company’s own criterion, decide which variances should be examined.
ii) list reasons why the variances you have identified may have arisen.
iii) calculate the actual figures for sales, direct materials, direct labour, variable overheads, fixed overheads and profit.