Limitation plc commenced the manufacture and sale of a new product in the fourth quarter of 2012.
Question:
(i) Forecast production/sales (batches of product):
-1.png)
(ii) It is estimated that direct labour is subject to a learning curve effect of 90 per cent. The labour cost of batch 1 of quarter 4, 2012 was £1 440 (at £12 per hour). The labour output rates from the commencement of production of the product, after adjusting for learning effects, are as follows:
-2.png)
Labour hours worked and paid for will be adjusted to eliminate spare capacity during each quarter. All time will be paid for at £12 per hour.
(iii) Direct material is used at the rate of 200 units per batch of product for the first 20 batches of quarter 4, 2012. Units of material used per batch will fall by 2 per cent of the original level for each 20 batches thereafter as the learning curve effect improves the efficiency with which the material is used. All material will be bought at £1.80 per unit during 2013. Delivery of the total material requirement for a quarter will be made on day one of the quarter. Stock will be held in storage capacity hired at a cost of £0.30 per quarter per unit held in stock. Material will be used at an even rate throughout each quarter.
(iv) Variable overhead is estimated at 50 per cent of direct labour cost during 2013.
(v) All units produced will be sold in the quarter of production at £1 600 per batch.
(a) Calculate the labour hours requirement for the second batch and the sum of the labour hours for the third and fourth batches produced in quarter 4, 2012.
(b) Prepare a budget for each of quarters 1 and 2, 2013 showing the contribution earned from the product. Show all relevant workings.
Step by Step Answer:
a The first batch was completed in 120 hours 1400 12 Applying a 90 learning curve the average time per batch is calculated as follows Hours required for batch 2 96 hours 2161120 Hours required for bat...View the full answer
