Question Two Marks Chimanyale Investment Limited is a small company manufacturing one type of component in a single operation. The company employs 10 direct workers on a basic 40 - hour week at K30 per hour with a guaranteed minimum weekly wage of K1,200 per operative. The maximum amount of overtime that may be worked, paid at time rate plus one third, is in total 200 hours per week. Additional direct hours cannot be recruited. 2 The average time for one operative to manufacture one component is 40 minutes. Demand for the product varies considerably, the minimum weekly output is 450 units, for a significant part of the year the company cannot satisfy total demand despite working the maximum overtime hours available. The nature of the component is such that stocks of work in progress or finished goods ca not be saved. After appropriate studies have been made, an incentive scheme has been proposed, based upon a standard operator time of 30 minutes per component, in which operatives will be paid K20 for each component produced. The guaranteed minimum wage would still apply, and, if required, overtime would continue to be worked, up to the maximum shown above, and be paid at the previous time rate premium. The selling price of the component is K90 per unit, material costs K20, variable overheads varying with hours worked K30 per labour hour, and fixed overheads K12,000 per week. You are required to: (a) Produce columnar revenue accounts, comparing weekly profits at the following activity levels: (1) Minimum weekly output (11) Current maximum output (111) Proposed maximum output [15] (a) Briefly explain the reasons for the change in profit caused by the incentives scheme. [5] (b) Assuming the incentive scheme is adopted and achieved standard efficiency, calculate the effect on company profits of a labour dispute in which 100 hours of direct operative's time were lost, and not paid for, during a week in which demand was: (1) 450 units (11) Greater than the proposed maximum level of output [10] [Total: 30 marks]