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A manufacturing company has the following monthly budget
Sales $480, 000
D. Mat $140, 000
D. Lat $110, 000
Var. O/H $ 50, 000
Fixed O/H $130, 000
Total costs $430, 000
Profit $50, 000Sales can be increased by 15% per mth if an extra work shift is added, but the sales price would have to be reduced by 3% on all units sold in order to sell the extra volume. D. Lab is a variable cost, but work in the extra shift would have to be paid an extra 50% per hr on top of the normal hourly rate. Increased purchases of materials means that a bulk purchase discount of 2% will be available on all materials purchased. Additional fixed overheads would be $2,000 per month.
If the additional work shift is added, what will be the monthly profit?
Sir, could you please assist me on calculation of labour costs in this question?
Sales $480, 000- 552 000
D. Mat $140, 000- 140 000
D. Lat $110, 000- 110 000
Var. O/H $ 50, 000- 50 000
Fixed O/H $130, 000- 132 000
Total costs $430, 000- 432 000
Profit $50, 000- 120 000seebolane: Please do not answer questions in this forum – it is Ask the Tutor, and you are not the tutor. (But do answer questions in the other F5 forum – that is for students to help each other).
(and you have not answered what Hemraj was asking anyway!!)
Hemraj:
The direct labour is a variable cost and so (ignoring for a moment that extra shift) then increasing sales by 15% would mean that the labour cost would increase by 15% x 110,000 = 16,500. However because it means having an extra shift, that extra work would be paid an extra 50%, which means it will cost 16,500 + 50% = 24,750.
So the total labour cost will be 110,000 + 24,750 = 134,750.Sir, which of the following is the correct calculation for sales:
1) Sales: $480000
Sales increase by 15% if extra shift is worked, i.e, $480000+15% = $5520002) Current sales: $480000
Sales increase by 15% if extra shift is worked , but sales price will have to be reduced
by 3% to sell the extra volume:
i.e, $552000 – 3% = $535440I am confused whether the 3% reduction in the sales price of all units sold is already
accounted for when the question says “sales can be increased by 15% if extra shift is
added”?Sir, please comment whether the following calculations are done correctly:
1) Direct Materials: $140000 + 15% = $161000
$161000 – 2% = $1577802) Variable O/H: $50000 +15% = $57500
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