Advanced: Mix variances and reconciliation of actual and budgeted profit The budgeted income statement for one of the products of Derwen pic for the month of May was as follows:

During May production and sales were both above budget and the following income statement was prepared:

In the above statement stock is valued at the standard cost of £4 per unit.
There is general satisfaction because the budgeted profit level has been achieved but you have been asked to prepare a standard costing statement analysing the differences between the budget and the actual performance. In your analy¬ sis, include calculations of the sales volume and sales price variances and the following cost variances: direct material price, mix, yield and usage variances; direct labour rate, mix, productiv¬ ity and efficiency variances: and overhead spending and volume variances. (17 marks)
Provide a commentary on the variances and give your views on their usefulness.

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Budgeted income statement - May Sales revenue: 10000 units at 5 Production costs: Budgeted production 10000 units () () Direct materials: Material A (5000 kg at 0.30) 1500 B (5000 kg at 0.70) 3500 5000 Direct labour: Skilled 13.500 (4500 hours at 3.00) Semi-skilled (2600 hours at 2.50) 6500 20 000 Overhead cost: Fixed 10000 Variable 5000 (10000 units at 0.50) 40000 Add Opening stock (1000 units at 4) 4000 44.000 Deduct Closing stock 4.000 (1000 units at 4) Cost of goods sold Budgeted profit () 50 000 40 000 10000