Question

Question 4 (25 marks) Tetley Tea has a highly talented workforce. Consequently, to appease their employees the company constructed a new lounge. The lounge has the capacity to accommodate at least 40 staff members at any point in time. For this reason, management believes that Tetley is the premier employer of choice. The entity commenced the year with a total of 2,800 employees, however, due to recession 50% of this complement was made voluntarily redundant during the year. This surprised senior managements because; at the start of the year they had anticipated for only 600 employees to leave. The excess was replaced immediately, by highly trained employees. The newly appointed employees had prior work experience either at Blue Mountain Coffee or Grace Kennedy or Jamaica Producer Limited. Due their experience, Tetley's profits before taxes increased by 14%. The profit increase resulted from efficiency gains due to increased productivity as a result of the company's time-based system. Tetley uses an hourly based system with the aim of spurring productivity. This system pays a basic rate of $25 per hour and overtime depending on whether the staff worked during the evenings or on weekends. Overtime rates are time and a half for evenings and double time for work done on weekends. Notwithstanding this, the current management team wants to ascertain the profitability on its latest production, the green tea blend and herbal tea. The following data below pertains to the production of 50 boxes (each) of teabags. Direct material per unit in kg Selling price per unit Normal time in hours Evening time Weekend Green tea 0.10 kg $375 250 50 50 Herbal tea 0.15 kg $415 225 75 50 The company purchased direct material at an average price of $310 per kilogram during the period. Required: Calculate the labour turnover rate. a. [3 marks b. Calculate the total costs and profits for the 50 boxes of teabags on the assumption that overtime is worked at the request of the customer. Total cost should include material, labour and overheads (if any). 19 marks c. Calculate the total costs and profits/losses for the 50 boxes of teabags on the assumption that overtime is worked occasionally to meet production requirements. Total cost should include material, labour and overheads (if any). [13 marks)

Answer 1

Answer:

a) Calculation of Labor Turnover rate:
Labor turnover rate: It is the rate of change in work force nothing but new joining, replacements, and job leaving etc... To calculate the Labor turnover rate there are 3 methods: 1. Separation method 2. Replacement method 3. Flux method

Separation method: In this method only the employees who left the organization are to be considered. Labor turnover rate=no.of workers who left during a period x 100 Average number of workers Average no of workers = no of workers in the beginning +no of workers at end of the period 2 Given: No of workers in the beginning = 2800 workers No of workers at the end of the period = 1400 workers due to recession 50% of employees are independently redundant. No of workers left during the period = 1400. Average no of workers = 2800+1400 = 2100 2 1400 Labor turnover rate= 2100 X 100 = 66.66%

Replacement method: In the firm he expected that minimum 600 employees are going to be leave but it went to 1400 employees and the excess are going to be replaced means here 800 employees are going to be replaced. 1400-600=800. Labor turnover rate= no of workers replaced during the period Average number of workers X 100 800 X 100 2100 = 38.095% Flux method: Labor turnover rate= no.of workers who left+no of workers who replaced x 100 Average number of workers 1400+800 2100 x 100 = 104.761%
b)

Given:

Average price for direct material per kg $310. Wages per hour $25 Wages for evening time is half of normal wage i.e. $25/2=12.5. Wages for weekend time is double of normal wage i.e. $25*2=50. So here first calculate the direct material cost for 50 boxes For Green tea. For 1 kg direct material $310. ? Then for 0.10 kg Do cross multiplication to find out the per box direct material cost. 0.10 310 = 1= $31 for one box direct material cost. For 50 boxes => $31 < 50 = $1550. For Herbal tea. For 1 kg direct material $310. Then for 0.15kg ? Do cross multiplication to find out the per box direct material cost. 0.15x310 = 1 = $46.5 rounded 47. For one box direct material cost. For 50 boxes => $47 x 50 = $2350.
Calculation of Total cost when employee requested overtime every day nothing but evening times:

Statement of Total cost Green Tea Herbal Tea Output 50 boxes 50 boxes 1550 2350 6250 Direct material Direct Labor Normal time ($25 x 250 hours Green tea) ($25x 225 hours herbal tea) Over time daily evening ($12.5 x 50 hours Green tea) ($12.5x 75 hours herbal tea) 5625 625 938 Prime cost 8425 8913 Overheads Total cost 8425 8913 Cost per unit (total cost/ no of units) 168.50 178.26
c) Calculation of Total cost when overtime is allocated weekend nothing but desirable by employer:

Statement of Total cost Green Tea Herbal Tea Output 50 boxes 50 boxes 1550 2350 6250 Direct material Direct Labor Normal time ($25 x 250 hours Green tea) ($25x 225 hours herbal tea) Over time weekend ($50 x 50 hours Green tea) ($50x 50 hours herbal tea) 5625 2500 2500 Prime cost 10300 10475 Overheads Total cost 10300 10475 Cost per unit (total cost/ no of units) 206 210

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