Self-test Mervyn & Co. has produced an annual budget for the manufacture of product Z.

This budget has now been broken down into months so that the production team can ensure targets are met.

The following is the budget for June 2010:

Number of units 2,200 units Direct material £88,000 Direct labour £44,000 Fixed overheads £40,000 Profit £48,000 Sales £220,000 Material used 88,000 kg Labour 5,500 hours During June, Mervyn & Co. achieved an increased output of 2,300 units all of which were sold. The following are the results for the month.

Number of units 2,300 units Direct material £92,600 Direct labour £46,400 Fixed overheads £38,600 Profit £49,400 Sales £227,000 Material used 92,600 kg Labour 5,920 hours As a result of the increased production, the monthly profit increased by £1,400.

Nevertheless, the firm still needs to find out where the areas are for improvement and where the production was favourable.

Accordingly you are required to prepare a revised budget for the increased output level (2,300 units) and then calculate all the variances. Reconcile these variances with the budget.