Variance – BPP pg 45/54 ASH (J’06)

The question is as follows :

“Ash plc recorded the following actual results for Product RS8 for the last month:
Product RS8 2,100 units produced and sold for $14.50 per unit
Direct material M3 1,050 kg costing $1,680
Direct material M7 1,470 kg costing $2,793
Direct labour 525 hours costing $3,675
Variable production overhead $1,260
Fixed production overhead $4,725

Standard selling price and cost data for one unit of Product RS8 is as follows.
Selling price $15.00
Direct material M3 0.6 kg at $1.55 per kg
Direct material M7 0.68 kg at $1.75 per kg
Direct labour 14 minutes at $7.20 per direct labour hour Variable production overhead $2.10 per direct labour hour
Fixed production overhead $9.00 per direct labour hour

At the start of the last month, 497 standard labour hours were budgeted for production of Product RS8. No inventories of raw materials are held.
All production of Product RS8 is soldimmediately to a single customer under a just-in-time agreement.

Required:

(a) Prepare an operating statement that reconciles budgeted profit with actual profit for Product RS8 for the last month. You should calculate variances in as much detail as allowed by the information provided.”

Acc. to BPP, in order to perform the reconciliation, we first need to calc. Budgeted Profit then add n substract all variances to arrive at the actual profit.

According to the BPP ans, the calculation of the bugeted profit is :
(Std gross Profit/unit * std hrs for budgeted production.)

So Std gross profit/unit = Std SP/unit – total std costs/unit
=15 – 6.39
= $ 8.61/unit

What i don’t understand is , if std gross pr. is calculated per unit then y is budgeted gross profit calculated by multiplying std gprofit per unit by std hrs for budgeted prodn?

As per BPP ans , Budgeted gross pr. = $8.61 *497hrs* 60/14
= $18339.3

Why is it not budgeted gross pr./unit * budgeted no.of unit?