Cleo Mortimer Ltd manufactures a single product, the villem. The
company sells its entire production as soon as it is manufactured,
consequently, there is neither opening nor closing stock of finished
goods. The company uses just-in-time ordering and the production cycle
is very short, with the result that the opening and closing stocks of
raw materials and work in progress are negligible. The standard cost
card for the Villem is as follows:


							            £
Direct materials	0.5kg at £4 per kg			  2.00
Direct wages		2 hours at £2 per hour			  4.00
Variable overheads	2 hours at 30p per hour		          0.60
Fixed overheads	        2 hours at £3.70 per hour		  7.40
Standard costs							 14.00
Standard profit						          6.00
Standard selling price						 20.00     


Selling, distribution and administration expenses, costing £15,000 in
May 2005, are excluded from standard cost ? they are deducted from
profit as a period charge. Budgeted output for May 2005 was 5,100
units. Actual output was 4,850 units, which were sold for £95,600.
Materials consumed amounted to 2,300 Kg at a cost of £9,800. Labour
hours cost £16,800 and amounted to 8,500 hours. Variable overheads
cost £2,600 and fixed overheads cost £42,300.


It is required that under an absorption costing system, variance
analysis is used to prepare a statement reconciling the budgeted with
actual profits for the month of May 2005.