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Problem 10.57 (Trade union demand for wage increase Vs management demand for productivity increase.) The company of which you are the Management Accountant is considering a trade union demand for an increase of 15% on the hourly wage rates of all direct workers. As an alternative, the management prefers to negotiate a productivity deal. The suggestion is to offer 5% on the basic hourly rates plus Re. 0.12 for every unit of output produced. If this is agreed to it was estimated that the production will increase by 12%2% without any additional hours being worked. The Marketing Director is confident of selling the increased output if the price for all sales were to be reduced by 27% of the selling price. The budgeted results for the forthcoming year excluding the above possible wage or sales increases are as under: Sales 12,00,000 units Rs. 24,00,000 Direct Material 4,80,000 Direct wages 7,20,000 Production overhead; Variable 1,08,000 Fixed 2,00,000 Administration overheads; Fixed 2,02,000 Selling Overheads; Variable (5% on sales) 1,20,000 Fixed 80,000 Distribution Overheads; Variable 96,000 Fixed 74,000 Total 20,80,000 3.20,000 Profit Required: (i) Prepare a report to set the budgeted results for each alternative and recommend the course of action to be followed. (ii) Calculate the minimum output level required for the management's proposal to be rewarding than the union's claim for wage increase. Problem 10.57 (Trade union demand for wage increase Vs management demand for productivity increase.) The company of which you are the Management Accountant is considering a trade union demand for an increase of 15% on the hourly wage rates of all direct workers. As an alternative, the management prefers to negotiate a productivity deal. The suggestion is to offer 5% on the basic hourly rates plus Re. 0.12 for every unit of output produced. If this is agreed to it was estimated that the production will increase by 12%2% without any additional hours being worked. The Marketing Director is confident of selling the increased output if the price for all sales were to be reduced by 27% of the selling price. The budgeted results for the forthcoming year excluding the above possible wage or sales increases are as under: Sales 12,00,000 units Rs. 24,00,000 Direct Material 4,80,000 Direct wages 7,20,000 Production overhead; Variable 1,08,000 Fixed 2,00,000 Administration overheads; Fixed 2,02,000 Selling Overheads; Variable (5% on sales) 1,20,000 Fixed 80,000 Distribution Overheads; Variable 96,000 Fixed 74,000 Total 20,80,000 3.20,000 Profit Required: (i) Prepare a report to set the budgeted results for each alternative and recommend the course of action to be followed. (ii) Calculate the minimum output level required for the management's proposal to be rewarding than the union's claim for wage increase