A company producing a standard product is facing declining sales and dwindling profits. It has therefore decided to introduce a standard cost system to control cost. To motivate workers to improve the productivity, the management has also decided to introduce an incentive scheme under which employees are paid 20% of the standard cost of materials saved and also 40% of the labour time saved valued at standard labour rate. The following are the details of the standard cost of the product. Standard Cost Per Unit Particulars Amount Rs. Direct material: 10 kg @ Rs.12 each 120 Direct labour: 3 hours @ Rs.10 each 30 Variable overheads: 3 hours @ Rs.5 each 15 Fixed overheads [based on a budgeted output of 10000 units] 25 Total standard cost per unit 190 Selling price per unit Rs.240 ? During one particular month 9600 units of the product were manufactured and sold incurring the following actual cost: Particulars Amount Rs. Direct materials 90000 kg 1210000 Direct labour 25000 hours 254000 Variable overheads 25000 hours 147000 Fixed overheads 250000 Total cost 1861000 Net profit 419000 Sales 2280000 Required: A]Variances that occurred during the month, duly reconciling the standard profits of actual production with actual profits. B] Bonus amount earned by the workers during the month under incentive scheme.
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