Reference no: EM133129092

Question - 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.

Required - Prepare the reconciliation between the budgeted and actual profit. Provide a possible scenario that explains what might have happened in the company.