Model: All variances
A company producing a standard product is facing a declining sales and dwindling profits. 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.
The following are the details of the standard cost of the product:
|
Standard cost per unit |
|
|
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 |
12,10,000 |
|
Direct labour – 25,000 hrs |
2,54,000 |
|
Variable overheads – 25,000 hrs |
1,47,000 |
|
Fixed overheads |
2,50,000 |
|
18,61,000 |
|
|
Net profit |
4,19,000 |
|
Sales |
22,80,000 |
Required:
- Variances that incurred during the months, duly reconciling the standard profit of actual production with actual profit.
- Bonus amount earned by the workers during the month under the incentive scheme.