HGW Limited produces a product called a Lexton. The standard selling price and the manufacturing costs of this product are as follows: £ Standard selling price per unit 86 Standard production costs: Direct material 1.5 kilos at £12 per kilo ; 18 Direct labour 4.4 hours at £7.50 per hour 33 Variable overheads 4.4 hours at £5 per hour 22 73 The projected production and sales for March 2013 were 520 units. On 1 April 2013 the following actual figures were determined. Sales 550 units at £85 each Production 550 units Direct material 785 kilos at £12.40 per kilo Direct labour 2,400 hours at £7.80 per hour Overheads £12,500 (overall variance £400 adverse) There was no opening inventory of the product Lexton. Required:

(a) Prepare an actual income statement for HGW Ltd for March 2013.

(b) Calculate the following variances and their respective sub-variances: (i) sales — price and volume (ii) direct materials — price and usage (iii) direct labour — rate and efficiency. () Prepare a statement reconciling the actual profit calculated in part

(a) with the budgeted profit on actual sales. (Use the variances calculated in part

(b) and the given overhead variance.)

(d) Write a report to the management outlining the factors that need to be considered when standards are being established.