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A company produces canned soups that requires 4 hours of labour time. Labour hours is considered the scarce resource (bottleneck). The company's factory is in
A company produces canned soups that requires 4 hours of labour time. Labour hours is considered the scarce resource (bottleneck). The company's factory is in operation for 4 days per week and 50 weeks annually. Each uni is sold for $140 and the product uses direct material valuing $20 per unit. The total factory operating costs includes direct labour and manufacturing overheads. The average labour rate is $15 per hour and the company employs 150 employees who all work 8 hours per day. The company uses an activity-based costing system for its production process. The estimated costs, activity levels and cost drivers are as follows: Equipment set ups $1.250.000 Number of set ups 50.000 Quality control $ 750.000 Number of Inspections 75.000 Machining costs $ 500 000 Machine hours 250.000 The actua activity levels for the same period are noted below based on data provided by the production department The actual activity levels for the same period are noted below based on data provided by the production department: 65,000 Number of set ups Number of Inspections 37 500 Machining hours 200.000 Required: (a) Calculate the return per lactory hour and the cost per factory hour. marks) (11 (b) Calculate the IPAR and advise management (2 marks) (c) Assuming that the IPAR is less than I suggest two ways that the entily could improve the TPAR (4 marks)
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