Mr. R. Sen Gupte is heading Playwell Shoes Pvt Limited. For the last few years, the company was not performing well. Its sales were not increasing; profits nose-dived; and costs were comparatively high. This was causing lot of concerns for him. He wanted somehow to improve upon the things. For that he made a small group called ‘Direction’ assisted by the consultants, M/S R M P Group of Industrial Consultants Pvt Limited. Direction worked for about six months and submitted a detailed restructuring strategy document, which was adopted at a Board Meeting with some modifications. In the beginning of the year 2019-20, this restructuring strategy was implemented. One of the schemes under the restructuring strategy was to provide foremen of each production unit 10% of the saving as incentive when in any month the manufacturing costs incurred are less than the budgeted ones.

One of the production unit of the company is located in Noida and the foreman of the unit is Mr. Mange Lal Sharma. Normally, this unit produces about 8,000 units of shoes branded as Action Well in a month. For the month of June 2019, the company had planned for a production of 10,000 units. But, due to sudden cancellation of some orders in the middle of June month, the unit could produce only 6,000 units. The budgeted estimates and actuals for June 2019 are given below:

Particulars	Nature	Expenses for a normal month	Budgeted Expenses for June 2019	Actual Expenses for June 2019
Salary of Foreman	Fixed	Rs. 10,000	Rs. 10,000	Rs. 10,000
Indirect Labour	Variable	Rs. 7,200	Rs. 9,000	Rs. 6,000
Indirect Material	Variable	Rs. 8,000	Rs. 10,000	Rs. 7,000
Repairs and Maintenance	2500+0.25X	Rs. 6,000	Rs. 6,500	Rs. 6,000
Power	5000+0.375X	Rs. 8,000	Rs. 8,750	Rs. 7,400
Other material consumed	Variable	Rs. 3,200	Rs. 4,000	Rs. 3,000
Rates and Taxes	Fixed	Rs. 1,500	Rs. 1,500	Rs. 1,500
Depreciation	Fixed	Rs. 8,000	Rs. 8,000	Rs. 8,000
Insurance	Fixed	Rs. 1,000	Rs. 1,000	Rs. 1,000
Total		Rs. 52,900	Rs. 58,750	Rs. 49,900
Note: X above means number of units produced in a month.

On the basis of the above data, Mr. Mange Lal Sharma has put in claim for an incentive of Rs. 885 which is 10% of (Rs. 58,750-Rs. 49,900) for June 2019. Mr. R. D. Gupta, overall in charge of the production of all units and the incentive scheme, has been just wondering how can a person claim an incentive when the company has lost a sizable contract. Mr. Gupta is not interested in giving him any incentive for the month of June 2019 while Mr. Mange Lal Sharma is insisting upon it. There is completely a deadlock.

You have been asked to intervene in between and to decide what the appropriate action under such a situation would be possible. Substantiate your answer with facts and figure.

Answer rating: 100% (QA)

The answer is as below The Actual Production of 6000 units is less than the Budgeted ProductionPlanned Production of 10000 units due to cancellation o... View the full answer