Labour in production budgets

A-Vic Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
Currently doing MAC 06 task 1.2 for some reason am struggling with the above for re-calculation as follows:-

4Fones Ltd employs 16 people in production who each work a standard 7-hour day and
5-day week.
• Each month has exactly 20 working days.
• Each 4G phone takes 0.5 labour hours to produce.
• The basic labour rate is £10 per hour and overtime is paid at one and a half times the
normal hourly rate.
• Budgeted overtime premium is included as part of the direct labour cost.

• 4Fones Ltd’s 16 employees are each prepared to work an additional 15 hours per week
for the 4-week period. These additional hours will be paid at a premium of 50%.

They predict sales of 25,000 units if the price were set at
£50 per phone, instead of the current £110. A local recruitment company can provide
temporary workers to cope with the additional demand. The hourly cost for these temporary
workers will be £20 per hour.

Any help would be great :)


  • Rinske
    Rinske Registered Posts: 2,453 Beyond epic contributor 🧙‍♂️
    Easiest way is just to recalculate it completely:

    First calculate how many you need to produce.
    Then calculate the hours you need.
    Calculate how many hours are normal hours.
    As overtime is cheaper then temp workers, so calculate the overtime.
    Calculate the rest of hours that is needed, so you know how many temp hours you need.
    Calculate the total costs with the hourly rates to the hours you just calculate

    Expected sales is 25,000 units
    Opening stock is 1,350 units
    Closing stock is 8,000 units

    The production is then 25,000 - 1,350 + 8,000 = 31,650

    They take half an hour to produce, so you need 15,825 hours to produce all phones.

    The normal staff works 7 hours per day for 20 hours. They got 16 people so your normal hours are 2,240 (7 x 20 x 16).

    They do 15 hours overtime per week at most, so that's 16 x 15 x 4 = 960 hours.

    So you need temporary workers to make up for 12,625 hours (15,825 - 2,240 - 960).

    Costs of these hours is listed separately.
    Normal hours: 2,240 x 10 = 22,400
    Overtime: 960 x 15 = 14,400
    Temp workers: 12,625 x 20 = 252,500

    Add it all together and you come to 289,300.

    (I didn't check the answers, but I think that it is about right)
    Hope this helps!

  • A-Vic
    A-Vic Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
    thanks just worked out where i was going wrong i was doing it for just one week (16 x 15) but forgot the 4weeks doh cheers :)
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