Mary Jane and Paula Jane are sisters who operates a bedding company. The process of producing the standard mattress (double bed only) involves both manual labour and machine time. The business has two production departments (but no service departments): (1) Forming (2) Assembly The factory operates 48 weeks annually and is closed for 4 weeks for maintenance; during this time, all workers go on unpaid vacation leave.

LABOUR

The factory employs twenty-eight (28) workers who are directly involved in the production process. Each employee works from 8:00 a.m. to 5:00 p.m. daily, Monday to Saturday. Workers are paid hourly, excluding the hour taken for lunch, from 12 noon to 1:00 p.m. Fourteen (14) of the employees work in the Forming department (mechanized) and are paid $175 per hour, while fourteen (14) employees work in the Assembly department (labour intensive) and are paid $145 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 Forming department is allowed 6 minutes to gather all the material before Forming. Workers in the Assembly department are allowed 9 minutes to ensure the assembly line is ready for operations.

MACHINE TIME

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

OVERHEAD RATES

Overheads are absorbed on a machine hour basis in the Forming Department and on a labour hour basis in the Assembly Department.

MATERIALS

Direct materials for production are imported from the United States.

The materials imported are as follows:

1. Natural fibre at $90 per yard

2. Polyurethane foam for $160

3. Polyester $30 per yard.

Each mattress uses 2 yards of natural fibre and 1 yard of polyester. The threads for sewing the edges are 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 350,000 mattresses. The labour and machine hours planned for the coming year is based on the numbers of mattresses 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 overtime work 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; $70,000 per month

2) Insurance of factory, on average $630,000 per annum

3) Janitorial service, $17,500 per month

4) Factory managers salary is $700,000 per month

5) Miscellaneous factory expenses $370,000 per annum*

INFORMATION ABOUT THE PRODUCTION DEPARTMENTS

	Forming Dept	Assembly Dept
. Area in square meters	. 1,500	2,000
Plant valuation	$1,250,000	$2,500,000
Janitorial hours per year	700	300
Factory managers oversight	55%	45%
*Miscellaneous expenses is utilized equally by both departments

REQUIRED:

1. Prepare an overhead analysis sheet for the business based on the plan for the year ending 31 December 2019 (12 marks)

2. Calculate overhead absorption rates for both production departments. (4 marks)

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

4. Calculate the budgeted total cost of producing the 350,000 mattresses. (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 enhance worker productivity. Critically assess the methods presented.