ABC Lda is a manufacturer of textile face masks which started operations in the second quarter of 2021 due to the Covid pandemic.

For the second semester of 2021 the company expected:

To sell each mask at 4 and sell 500,000 units.

Each mask requires 0.3 metres of material which is bought at the budgeted price of 5 per meter.

It takes 15 minutes of direct labour to make one mask. Direct labour workers are paid 9 per hour in proportion to the hours they actually work.

The company estimates that indirect salaries will be 5,000 per month and other overheads will be 10,000 per month.

Actual Results for the second semester of 2021:

The company sold 400,000 units at selling price of 5 per unit.

The company used 100,000 m of material incurring costs of 600,000.

Direct Labourers were paid 800,000 in total and took on average 12 minutes per mask.

Indirect salaries were 36,000 and other overheads were as expected.

1. Prepare the reconciliation between the budgeted and actual profit.

Profit reconciliation
Budgeted profit
SMVV
Sales Price Variance
DM Price Variance
DM Usage Variance
DL Rate Variance
DL Efficiency Variance
Indirect Salaries Variance
Other Overheads Variance
Actual Profit

Provide a possible scenario that explains what might have happened in the company