Kondani Engineering uses an old method of machining a part manufactured for sale. The estimates of operative details for the year 2016-17 are given below.

Number of parts to be manufactured and sold: 400, 000

Raw materials required per part: 20 kg @ K4 per kg

Average wage rate per worker: K15 per day of 8 hours

Average labor efciency: 30%

Standard time required to manufacture one part: 3 hours

Overhead rate: K20 per clock hour

Material handling expenses: 4% of the value of raw material.

Kondani Engineering asked for suggestions from the employees and an award equivalent to three months saving in labor cost is passed on to the worker whose suggestion is accepted. In response to this suggestion has been received from an employee to use a special Hop in the manufacture of the aforesaid part. The cost of the Hop, which has life of one year is K60, 000 and the use of the Hop will reduce the standard time by 6 minutes.

Required:

[a] Compute the amount of award payable to the employee who has given the suggestion.

[b] Prepare a statement showing the annual cost of production before and after the implementation of the suggestion to use the Jig and indicate the annual saving.

[c] State the assumptions on which your calculations are based.