j65 Less: standard cost of 8,000 buckets sold: Material 8,00,000 Labour 1,60,000 Variable overheads 1,60,000 Fixed overheads 3,20,000 14,40,000 Standard net profit 2,40,000 Cost variance: Material price 33,000 Material usage 25,000 Labour rate 36,000 Labour efficiency 20,000 Variable overhead spending 18,000 Variable overhead efficiency 20,000 Spending fixed overhead 20,000 Fixed overhead efficiency 40,000 Capacity variance 40,000 1,07,000 (1,45,000) (38,000) Actual net profit 2,02,000 P.20.4 At the end of the current year, the cost accounting department of SK Industries Ltd has furnished the following summary of labour and material variances to its management: Materials price variance 15,68,000 (Dr) Materials usage variance 49,600 (Dr) Labour rate variance (skilled labour) 3,84,000 (Dr) Labour efficiency variance (skilled labour) 13,32,000 (Dr) Mr Harishanker, the managing director of the company, finds it difficult to understand why the vari- ances are so large. During the year, the company operated at 96,000 direct labour-hours and produced 4,80,000 units. The standard cost sheet per unit is as follows: Direct materials (2 units @ 12.4) 24.80 Direct labour (7.5 minutes @ 74 per hour) The management is informed that materials can now be purchased only at 814 a unit. The material consumed during the period is 9,64,000 units. The new wage rates of skilled labourers as per the new agreement with their trade union is 182. It is also brought to the notice of the management that only 5 units of product can be produced per labour-hour You are required to (1) Set up a more realistic schedule of standard unit costs for materials and labour, and (ID) Recompute the variances according to the new schedule. 9.25