Flint Palatignium Ltd calculates the prices of its output by adding a mark-up of 15% to standard costs. These standard costs are arrived at by reference to budgeted outputs and estimated direct costs as follows: £ each Standard price/rate Materials 5.00 £1 per unit Direct labour 2.50 £1.25 per hour Overheads 7.50 £3.75 per direct labour hour 15.00 Mark-up 2.25 Selling price 17.25 Management accounts for April, 2014 provide an analysis of operations as follows: £ Sales — at standard price 534,750 Standard margin on sales 69,750 Favourable sales price variance 8,691 78,441 Other favourable variances Material price 4,662 Labour rate 600 Overhead expenditure 147 83,850 Adverse variances Material usage (1,743) Labour efficiency (292) Overhead capacity (9) Actual operating profit ' 81,806 Materials in inventory are valued at standard cost. At 1 April, 1,000 units of material were held, whereas at 30 April the inventory of this material increased to 1,750 units. Required: (i) A trading account for the month of April 2014 comparing the budgeted income and expenditure appropriate to actual output, to actual income and expenditure.

(ii) An explanation of the value of standard costing and variance analysis to a service business whose custom is to negotiate fixed price contracts. (Welsh Joint Education Committee: GCE A-level) Note: The following question covers material from both Chapters 42 and 43.