The upholstery department of a furniture manufacturing business prepared the following statement of standard costs at the start of the calendar year:

Standard cost per unit

                                                               £

Direct material .................................. 250

Direct labour ..................................... 150

Fixed manufacturing overhead ...... 100

                                                                500

In preparing the statement, it was budgeted that 100 units would be completed each month.

During the month of May the following results were reported:

                                                                   £

Direct materials cost ............................ 31,200

Direct labour cost ................................  16,800

Fixed manufacturing overhead .......... 9,600

                                                                    57,600

The actual level of production achieved in May was 120 units. The budget for direct materials was based on an allowance of 10 kg materials per unit produced. The budgeted cost of materials was £25 per kg. Actual materials used during May amounted to 1,300 kg.

The budget for direct labour was based on an allowance of 15 hours per unit, at a labour rate of £10 per hour. At the start of May, an agreed incentive scheme increased the labour rate to £12 per hour. All employees receive the same rate of pay.

Stocks of finished goods are valued at full standard cost of manufacture.

Required

(a) Prepare an accounting statement reconciling the budgeted costs for the month of May with the actual costs incurred, including in your answer relevant cost variances.

(b) Suggest possible causes for the variances you have calculated.