The monthly budget of Plastics Ltd, manufacturers of specialist containers, was prepared on the following specification:
|
Production and sales |
30,000 units |
|
Selling price |
£70 per unit |
|
Direct materials input |
5 kg per unit at a cost of £1.20 per kg |
|
Direct labour input |
2 hours per unit at a rate of £4 per hour |
|
Variable overhead |
£2 per direct labour hour |
|
Fixed overhead |
£90,000 per month |
The following actual results were recorded for the month of May Year 8:
|
Stock of finished goods at start of month |
8,000 units |
|
Sales |
40,000 units |
|
Production |
42,800 units |
|
Stock of finished goods at end of month |
10,800 units |
Actual costs incurred were:
|
|
£ |
|
Direct material |
267,220 (213,776 kg at £1.25 per kg) |
|
Direct labour |
356,577 |
|
Variable overhead |
165,243 |
|
Fixed overhead |
95,000 |
Further information
(a) Throughout May the price paid for direct materials was £1.25 per kg. Direct material is used as soon as it arrives on site. No stocks of materials were held at the start or end of May.
(b) The labour rate paid throughout the month was £4.10 per hour.
(c) The selling price of finished goods was £70 per unit throughout the month.
(d) Stocks of finished goods are valued at standard cost of production.
Required
(a) Calculate the budgeted profit for May Year 8, based on the actual sales volume achieved.
(b) Calculate the cost variances for the month of May.
(c) Explain how cost variances may be used to identify responsibility for cost control within the company.