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Contract Manufacturing Ltd (CM) produces two products, FA and MA. CM expected to sell 90,000 units of FA and 36,000 units of MA in 2021.
Contract Manufacturing Ltd (CM) produces two products, FA and MA. CM expected to sell 90,000 units of FA and 36,000 units of MA in 2021. CM planned on having an ending inventory of 6,000 units of FA and 3,000 units of MA. At the start of 2021, CM had 2,250 units of FA and 900 units of MA in its inventory. Each product required two labour intensive processes: moulding and polishing. FA required one hour of moulding time and one and a half hours of polishing time, while MA required one hour of moulding time and one hour of polishing time. The budgeted direct labour rate for moulders was $25.00 per moulding hour, and the budgeted direct labour rate for polishers was $30.00 per polishing hour. The production manager in charge of FA and MA was Hugo. His performance targets for 2021 were (1) to meet production units as budgeted for 2021; and (2) ensure that labour costs variances for each product do not exceed 5% of budgeted amounts. The actual production labour costs for 2021 for FA and MA were $6,970,000 and $2,103,600 respectively. In total, CM produced 91,350 units of FA and 36,600 units of MA. Required: (a) Prepare a direct labour budget in hours and dollars for each product for 2021. (b) Evaluate if Hugo met his performance targets for 2021. Do you think Hugo has performed well in 2021? Explain and show computations to support your evaluation. (c) Should a manager like Hugo be held responsible for the variance in the number of units produced each year and their related labour costs? Explain and discuss
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