Response to the following problem:
Mowbray Ltd makes and sells one product, the standard costs of which are as follows:
£
Direct materials (3 kg at £2.50/kg) 7.50
Direct labour (15 minutes at £9.00/hr) 2.25
Fixed overheads 3.60
13.35
Selling price 20.00
Standard profit margin 6.65
The monthly production and sales are planned to be 1.200 units. The actual results for May were as follows:
| |
|
£ |
|
Sales revenue
|
18,000
|
|
|
Less
|
|
|
|
Direct materials
|
(7,400)
|
(2,800 kg)
|
|
Direct labour
|
(2,300)
|
(255 hr)
|
|
Fixed overheads
|
(4,100)
|
|
|
Operating profit
|
4,200
|
|
There were no inventories at the start or end of May. As a result of poor sales demand during May, the business reduced the price of all sales by 10 per cent.
Required:
Calculate the budgeted profit for May and reconcile it to the actual profit through variances, going into as much detail as is possible from the information availabee.