Intermediate: Variance analysis and reconciliation of standard and actual cost B limited started trading on 1 November 1987, manufacturing and selling one product. The standard cost per unit was:

Direct material: standard price £10 per kilogram standard quantity 20 kilograms per unit Direct labour standard rate of pay £5.50 per hour standard time allowance 12 hours per unit Production overhead costs, all classified as fixed. were budgeted at

£900000 per annum The standard lime for producing one unit is 12 machine hours and normal capacity is 60 000 machine hours per annum. Production overhead is absorbed on machine hours.

For the year ended 31 October 1988, the costs incurred and other relevant information is given below.

Direct material used- 100 000 kilograms at a cost of £1 050 000 Direct wages paid- £310000 for 62000 hours Production overhead - £926 000 Machine capacity used - 60 000 hours Actual output- 4800 units Assume no stocks of work-in-progress or finished goods at year end.

You are required to

(a) show the standard product cost for one unit; (2 marks)

(b) calculate the appropriate variances for material, labour and overhead including the total variances; (15 marks)

(c) present a statement for management reconciling the standard cost with the actual cost of production

(d) suggest two possible reasons for each of the sub vanances you have calculated for direct material and direct labour.