Bradley-Allen Ltd makes one standard product. Its budgeted operating statement for May is as follows:

£ £

Sales (volume and revenue): 800 units 64,000 Direct materials: Type A (12,000)

Type B (16,000)

Direct labour: Skilled (4,000)

Unskilled (10,000)

Fixed overheads: (12,000)

(54,000)

Budgeted operating profit 10,000 The standard costs were as follows:

Direct materials: Type A £50/kg Type B £20/m Direct labour: Skilled £20/hour Unskilled £16/hour During May, the following occurred:

1 950 units were sold for a total of £73,000.

2 310 kg (costing £15,200) of type A material were used in production.

3 920 metres (costing £18,900) of type B material were used in production.

4 Skilled workers were paid £4,628 for 222.5 hours.

5 Unskilled workers were paid £11,275 for 687.5 hours.

6 Fixed overheads cost £11,960.

There were no inventories of finished production or of work in progress at either the beginning or end of May.

Required:

(a) Prepare a statement that reconciles the budgeted to the actual profit of the business for May, through variances. Your statement should analyse the difference between the two profit figures in as much detail as possible.

(b) Explain how the statement in

(a) might be helpful to managers.

AppendixLO1