A factory incurred the following expenditure during the year ended 31 May 2016:

	Sh.
Direct material consumed	1,200,000
Manufacturing wages	700,000
Manufacturing overhead fixed	360,000
Manufacturing overhead variable	250,000
Total cost	2,510,000

In the financial year ending 31 May 2017, the following changes are expected in production and cost of production.

• Production will increase due to recruitment of 60% more workers in the factory.
• Overall efficiency will decrease by 10% as a result of the recruitment of the new workers
• There will be an increase of 20% in fixed overhead and 60% in variable overhead
• The cost of direct material will decrease by 6% due to anticipated increase in supply
• The company desires to earn a profit of 10% on selling price.

You are required to write a management report that compares the total costs for the year ended 31 May 2016 with those expected in 2017.