A company producing a standard product is facing a declining sales and dwindling profi ts. It has, therefore, decided to introduce a standard-cost system to control the cost. To motivate the workers to improve 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 a standard labour rate.

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The following are the details of the standard cost of the product: Standard cost per unit Rs. Direct material-10 kgs at Rs. 12 120 Direct labour-3 hrs at Rs. 10 30 Variable overheads - 3 hrs at Rs. 5 15 Fixed overheads-(based on budgeted output of 10, 000 units) 25 190 Selling price per unit = Rs. 240. During one particular month, 9,600 units of the product were manufactured and sold incurring the following actual cost: Direct material - 90,000 kg Direct labour - 25,000 hrs Variable overheads - 25,000 hrs Fixed overheads Net profit Sales Required: Rs. 12,10,000 2,54,000 1,47,000 2,50,000 18,61,000 4,19,000 22,80,000 (a) Variances that incurred during the months, duly reconciling the standard profit of actual production with actual profit. (b) Bonus amount earned by the workers during the month under the incentive scheme.