A company producing a standard product is facing declining sales and dwindling profi ts. It has, therefore, decided to introduce a standard-cost system to control the cost. To motivate workers to improve productivity, the management has also decided to introduce an inactive scheme under which employees are paid 20% of standard cost of materials saved and also 40% of the labour time saved valued at standard labour rate.

Following are the details of the standard cost of the product:

Standard cost per units

Required:

(a) Variances that occurred during the month and dutyreconciling profi t of the actual production with the actual profi t.

(b) Bonus amount earned by the workers during the month under the incentive scheme.

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Rs. Direct material - 10 kg at Rs. 12 120 Direct labour -3 hours at Rs. 10 30 Variable overheads - 3 hours at Rs. 5 15 Fixed overheads - (based on a badgered 25 Output of 10,000 units)] Selling price per unit- Rs. 240. 190 During one particular month, 9,600 units of the product were manufactured and sold incurring the following actual cost: Rs. Direct material 90,000 kgs 12,10,000 Direct labour 25,000 hours 2,54,000 Variable overheads 25,000 hours 1,47,000 Fixed overheads 2,50,000 18,61,000 Net profit 4,19,000 Sales 22, 80,000