7.6 Mowbray Ltd makes and sells one product, the standard costs of which are as follows:

£

Direct materials (3 kg at £2.50/kg) (7.50)

Direct labour (15 minutes at £9.00/hr) (2.25)

Fixed overheads ( 3.60 )

(13.35)

Selling price 20.00 Standard profit margin 6.65 The monthly production and sales are planned to be 1,200 units.

The actual results for May were as follows:

£

Sales revenue 18,000 Direct materials (7,400) (2,800 kg)

Direct labour (2,300) (255 hr)

Fixed overheads ( 4,100 )

Operating profit 4,200 There were no inventories at the start or end of May. As a result of poor sales demand during May, the business reduced the price of all sales by 10 per cent.

Required:

Calculate the budgeted profit for May and reconcile it to the actual profit through variances, going into as much detail as is possible from the information available.