Super Ltd, a manufacturing company is facing the problem of high labour turnover in the factory. Before analysing the causes and taking remedial…
CA Intermediate · Cost and Management Accounting · PYQS · May 2024
Super Ltd, a manufacturing company is facing the problem of high labour turnover in the factory. Before analysing the causes and taking remedial steps, the management of the company wants to ascertain the profit lost for the year 2022-23 on account of labour turnover. For this purpose, it has given you the following information: (i) Sales for the last year 2022-23 was - 2,16,80,000 and P/V ratio was 15%. (ii) The total number of actual hours worked by the direct labour force was 5,00,000 hours. The actual direct labour hours included 60,000 hours attributable to training new recruits, out of which 40% of the hours were unproductive. (iii) Due to delays by the Personnel Department in filling vacancies on account of labour turnover, 95,000 potential productive hours (excluding unproductive training hours) were lost. (iv) 1,500 units of the output produced during training period were defective. Cost of rectification of defective units was 40 per unit. (v) Settlement cost of the workers leaving the organization was - 2,37,880. (vi) Recruitment and Selection cost was - 1,40,000. (vii) Cost of Training and Induction was - 1,61,950. Assuming that the potential production lost as a consequence of labour turnover could have been sold at prevailing prices, find the profit lost for the year 2022-23 on account of labour turnover.
Suggested Answer and Working Notes:
Workings: (i) Computation of productive hours Actual hours worked (given) 5,00,000 Less: Unproductive training hours 24,000 Actual productive hours 4,76,000 (ii) Productive hours lost: Loss of potential productive hours + Unproductive training hours = 95,000 + 24,000 = 1,19,000 hours (iii) Loss of contribution due to unproductive hours : = (Sales value / Actual productive hours) × Total unproductive hours = (₹ 2,16,80,000 / 4,76,000 hrs) × 1,19,000 hours = 54,20,000 Contribution lost for 1,19,000 hours = 54,20,000 × 15% = 8,13,000 Computation of profit forgone on account of employee turnover (₹) Contribution foregone (as calculated above) 8,13,000 Settlement cost due to leaving 2,37,880 Recruitment and Selection cost 1,40,000 Training and Induction costs 1,61,950 Cost of Rectification (1500 units x 40) 60,000 Profit foregone 14,12,830 The above question can also be solved in alternative way after taking proper assumptions Workings: (i) Computation of productive hours Actual hours worked (given) 5,00,000 Less: Unproductive training hours 24,000 Actual productive hours 4,76,000 (ii) Productive hours lost: Loss of potential productive hours = 95,000 hours (iii) Loss of contribution due to unproductive hours : = (Sales value / Actual productive hours) × Total unproductive hours = (₹ 2,16,80,000 / 4,76,000 hrs) × 95,000 hours = 43,26,891 Contribution lost for 95,000 hours = 43,26,891 X 15% = 6,49,034(approx.) Computation of profit forgone on account of employee turnover (₹) Contribution foregone (as calculated above) 6,49,034 Settlement cost due to leaving 2,37,880 Recruitment and Selection cost 1,40,000 Training and Induction costs 1,61,950 Cost of Rectification (1500 units x 40) 60,000 Profit foregone 12,48,864
Topics: Employee Cost & Direct Expenses
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