QUESTION 1 (45 marks CASE STUDY: HOT STEPPA LTD. A company specializes in leather boots for children in Northern Jamaica. The process of producing the boots involves both manual labour and machine time. The business has two production departments (but no service departments): (1) Forming and (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 om 8:00 am. 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. Seven (7) of the employees work in the Forming department (mechanized) and are paid $275 per hour, while twenty-one (21) employees work in the Assembly department (labour intensive) and arepaid $3 30 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 12 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 pair of boots requires 15 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) Leather $425 per square foot and (2) Synthetic bre laces $325 for a pack of 10 (each pair of boot requires 2 laces). Each pair of boots requires 4 square feet of leather. 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 250,000 boots. The labour and machine hours planned for the coming year is based on the estimated production of the boots. 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; $86,000 per month 2) Insurance of factory, on average $700,000 per annum 3) Janitorial service, $20,000 per month 4) Factory manager's salary is $460,000 per month 5) Miscellaneous factory expenses $270,000 per annum" INFORMATION ABOUT THE PRODUCTION DEPARTMENTS Fanning Dept. Assembly Dept. Area in square meters 3,000 5,000 Plant valuation $2,000,000 $6,000,000 Janitorial hours per year 600 400 Factory managers oversight 55% 45% *Miscellane ous expenses are utilized equally by both departments REQUmED: 1. Prepare an overhead analysis sheet for the business based on the plan for the year ending 31 December 2021 (14 marks) 2. Calculate overhead absorption rates for both production departments. (6 marks) 3. Calculate the total cost of overtime pay. (8 marks) 4. Calculate the budgeted total cost of producing the 285,000 pairs of boots. (9 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. (8 marks) NB: IGNORE UNDER IOVER ABSORPTION 0F OVERHEADS QUESTION 2 (25 marks Mega Value's main product is the sugar lollipop. Each item is sold for $800 with a profit margin of 25% each. The company orders 450,000 units quarterly and management wants to know the optimal order quantity. To place each order, the entity designates a single employee who is paid at a rate of $50 per hour which takes a maximum of five hours. The cost of holding each unit of inventory is $4. Management was advised by the supplier that a 2.5% discount will be given if the company doubles its current lot size. On the other hand, a 5% discount will be granted for two and a half times the current lot size and a 10\": discount if the order size is four times the amount. REQURED: 1. Calculate the EOQ based on the formula. (3 marks) 2. Calculate the total cost based on the EOQ. (4 marks) 3. Calculate the total cost for each individual alternate order quantity including the current policy. (16 marks) 4. Which order quantity is considered the optimal order quantity and why'.7 (2 marks)