The budgeted output for March was 1,000 units of product X; the actual output was 1,100 units, which was sold for £34,950. There were no inventories at the start or end of March.

The actual production costs were:

£

Direct labour (2,150 hours) 12,210 Direct materials (1,170 kg) 11,630 Fixed overheads 3,200 Required:

Calculate the variances for March as fully as you are able from the available information, and use them to reconcile the budgeted and actual profit figures.

You have recently overheard the following remarks:

(a) ‘When calculating variances, we, in effect, ignore differences of volume of output, between original budget and actual, by flexing the budget. If there were a volume difference, it is water under the bridge by the time that the variances come to be calculated.’