Advanced : Reconciliation of budgeted actual profits A company with two cost centres. 1 and 2. manufactures two products K and P whose standard variable costs of production per article are:

Budgeted data for a period of four weeks each of 40 hours are:

Marketing and administration costs total £18 000 per period and are treated as fixed period costs.
Actual data for period No . 10 were:

Costs:

Opening and closing stocks of raw materials and work in progress were constant.
The company absorbs fixed production overhead into product costs by means of cost centre direct hour rates. All variances are transferred to the profit and toss account. Marketing and administration costs were at the budget level.
You are required in respect of period No . 10 to:

(a) calculate the cost variances marked with a? in the following table:

(b) present a profit and loss statement for the company that incorporates the cost variances by cost centre; (11 marks)

(c) comment on the relative performance of the two cost centres.

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Product K Cost centre Quantity Price/rate Total (units) ( per unit) () 12 Direct materials 101 12 5 60.00 2 Direct materials 102 4 15 60.00 (hours) ( per hour) () 17212 Direct labour Grade A 10 3.40 34.00 Direct labour Grade B 6 2.40 14.40 Direct labour Grade C 16 1.80 28.80 Variable overhead 16 0.60 9.60 Variable overhead 16 0.50 8.00 214.80 Product P Cost centre Quantity Price/rate Total (units) ( per unit) () 12 1212 Direct materials 101 16 Direct materials 103 99 5 80.00 6 4 24.00 (hours) (2 per hour) () Direct labour Grade B 14 2.40 33.60 Direct labour Grade C 12 1.80 21.60 Variable overhead 14 0.60 8.40 2 Variable overhead 12 0.50 6.00 173.60