Makeshift Ltd., manufactures a single product. The company's annual normal production is 5,00,000 units of output...

 

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Makeshift Ltd., manufactures a single product. The company's annual normal production is 5,00,000 units of output on a single shift of 8 hours a day basis in terms of a standard input of 1,00,000 direct labour hours. Last year's income statement is given below: Sales (7,00,000 units @ $ 2.50) Variable Expenses : Direct material Direct labour (1,40,000 hours @ $ 3.50) Factory overhead : Overtime premium Miscellaneous Contribution Fixed expenses Net Income $ 2,80,000 4,90,000 1,40,000 2,10,000 $ 17,50,000 11,20,000 6,30,000 5,30,000 1,00,000 Management is concerned about the overtime working done last year (overtime is paid at double the normal rates) and wants to investigate the possibility of working a second shift. The cost accountant of the company estimates that a second shift would increase costs as under: Additional factory supervision at $ 30,000 per annum. A night shift allowance of $ 0.60 per direct labour hour and increase in security and administration cost of $ 40,500 per annum. A) Instead of working overtime, a second shift had been introduced at the beginning of the last year itself, would profits have been better? If so by how much? B) At what capacity level would it be advantageous for the company to change from overtime working to second. shift C) This year it is estimated that there will be on last year's figures 20% increase in units sold, 10% increase in selling price, 5% increase in direct material cost per unit and direct labour rate increase of $ 0.30 per hour. Assuming that the overtime working would be continued, prepare an income statement for the year based on the current estimates. If a second shift working were to be introduced with an increase in night shift allowance of $ 0.06 per direct labour hour, what would have been the saving in cost? Makeshift Ltd., manufactures a single product. The company's annual normal production is 5,00,000 units of output on a single shift of 8 hours a day basis in terms of a standard input of 1,00,000 direct labour hours. Last year's income statement is given below: Sales (7,00,000 units @ $ 2.50) Variable Expenses : Direct material Direct labour (1,40,000 hours @ $ 3.50) Factory overhead : Overtime premium Miscellaneous Contribution Fixed expenses Net Income $ 2,80,000 4,90,000 1,40,000 2,10,000 $ 17,50,000 11,20,000 6,30,000 5,30,000 1,00,000 Management is concerned about the overtime working done last year (overtime is paid at double the normal rates) and wants to investigate the possibility of working a second shift. The cost accountant of the company estimates that a second shift would increase costs as under: Additional factory supervision at $ 30,000 per annum. A night shift allowance of $ 0.60 per direct labour hour and increase in security and administration cost of $ 40,500 per annum. A) Instead of working overtime, a second shift had been introduced at the beginning of the last year itself, would profits have been better? If so by how much? B) At what capacity level would it be advantageous for the company to change from overtime working to second. shift C) This year it is estimated that there will be on last year's figures 20% increase in units sold, 10% increase in selling price, 5% increase in direct material cost per unit and direct labour rate increase of $ 0.30 per hour. Assuming that the overtime working would be continued, prepare an income statement for the year based on the current estimates. If a second shift working were to be introduced with an increase in night shift allowance of $ 0.06 per direct labour hour, what would have been the saving in cost?

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Answer AB B B m m2 C From the central maximum 3rd ... View the full answer