Problem:
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.