CASE STUDY: GOLDBLUM LIMITED A water recycling business in Kingston, Jamaica trading as Goldblum Limited is owned and operated by siblings John and Mark. The process of producing the bottled purified water (in onegallon bottles only) involves both manual labour and machine time. The business has two production departments (but no service departments):

1. Filling and Capping

2. Labeling.

The factory operates 48 weeks per year and is closed 4 weeks for retooling and maintenance work; during this time all workers go on vacation without pay.

LABOUR The factory employs twenty-nine (29) workers who are directly involved in the manufacture of the bottled water. Each employee works from 8:00am to 5:00pm daily, Monday to Saturday. Workers are paid hourly, excluding the hour taken for lunch, from 12noon to 1:00pm. Fourteen (14) of the employees work in the Filling and Capping department (mechanized) and are paid $390 per hour, while fifteen (15) employees work in the Labeling department (labour intensive) and are paid $330 per hour. The company pays for overtime work at time and a half on weekdays and double time on Saturdays; the factory is closed on Sundays. On average, each worker in the filling and capping department is allowed 6 minutes to sterilize a bottle before filling and capping. Workers in the Labeling department are allowed 5 minutes to label each bottle.

MACHINE TIME

There are seven (7) filling and capping machines operated by two workers per machine. The machines are semi-automated. On average, each bottle requires 6 minutes of machine time.

OVERHEAD RATES

Overheads are absorbed on a machine hour basis in the Filling and Capping Department and on a labour hour basis in the Labeling Department.

MATERIALS

Raw materials for production are imported from the Germany. The raw materials imported are as follows: 1. One gallon plastic bottles, at $85 per bottles 2. One gallon water for $120 3. Labels per bottle $55

Adhesive used to attach the labels is considered indirect materials and is included in miscellaneous expenses.

BUDGET FOR YEAR ENDING 31 DECEMBER 2019

For the coming year, the company plans to produce 450,000 bottles of water. The labour and machine hours planned for the coming year is based on the bottles of water to be produced. Any shortfall in labour hours during regular time will be supplemented through overtime work; 80% on weekdays and 20% on Saturdays. All over timework will be treated as worked done normally to fulfill production requirements. The following costs are also associated with the operation of the factory:

1) Rental expense; $180,000 per month

2) Insurance of factory, on average $1,200,000 per annum

3) Janitorial service, $75,000 per month

4) Factory managers salary is $580,000 per month

5) Miscellaneous factory expenses $780,000 per annum*

INFORMATION ABOUT THE PRODUCTION DEPARTMENTS

FILLING & CAPPING DEPARTMENT LABELING DEPARTMENT

Area in square meters 2000 4000

Plant valuation $3,000,000 $5,000,000

Janitorial hours per year 720 360

Factory managers oversight 55% 45%

*Miscellaneous expenses are utilized equally by both departments

REQUIRED:

1. Prepare an overhead analysis sheet for the business based on the plan for the year ending 30 June 2023. (12 marks) 2. Calculate overhead absorption rates for both production departments. (4 marks)

3. Calculate the total cost of overtime pay (6marks)

4. Calculate the budgeted total cost of producing the 450,000 bottles of water. (10 marks)

5. The owners of the factory are considering new remuneration methods to improve output. Write a memo to the owners of the factory advising them of the remuneration methods that could be used to enhanced worker productivity. Critically assess the methods presented. (8 marks)

NB: IGNORE UNDER /OVER ABSORPTION OF OVERHEADS