Intermediate: Variance analysis and reconciliation of budgeted and actual profit The Perseus Co. Ltd, a medium-sized company, produces a single produce in its one overseas factory. For control purposes, a standard costing system was recently introduced and is now in operation.
The standards set for the month of May were as follows:

Overheads (all fixed) at £86 400 per month are not absorbed into the product costs.
The actual data for the month of May, are as follows:
Produced 15 400 units, which were sold at £138.25 each.
Materials Used 98 560 kilos of material 007 at a total cost of £1256640 Used 42 350 kilos of material XL90 at a total cost of £132979 Labour Paid an actual rate of £8.65 per hour to the labour force. The total amount paid out amounted to £612766 Overheads (all fixed) £96 840 Required:

(a) Prepare a standard costing profit statement, and a profit statement based on actual figures for the month of May. (6 marks)

(b) Prepare a statement of the variances which reconcile the actual with the standard profit or loss figure. (9 marks)

(c) Explain briefly the possible reasons for inter¬
relationships between material variances and labour variances. (5 marks)
(Total 20 marks)
ACCA Paper 8 Management Finance

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Production and sales Selling price (per unit) Materials Material 007 Material XL90 Labour 16000 units 140 6 kilos per unit at 12.25 per kilo 3 kilos per unit at 3.20 per kilo 4.5 hours per unit at 8.40 per hour