Calculate the target production time per unit and the time to be reduced per unit.

Target production time per unit and the time to be reduced per unit The current production time is 3 hours per unit. Even though the selling price cannot be increased, Pritam wants the profits from baked glassware to increase by 10%, that is 1.54 crores as explained above. Therefore, as suggested by Nagraj, value analysis is used to eliminate waste and streamline activities so that it can yield cost savings. To work back on what the target production time per unit should be, we need to know what is the target cost to achieve in order to yield a profit of 1.54 crores in F.Y. 2025-26. The target sales for next year is 88,000 units, up 10% from the current levels. Current selling price of 500per unit will remain the same. Since no redesign is being made, the direct material cost also remains the same. Therefore, reduction can be achieved only through reduction of direct labour and variable overhead costs. These are driven by production hours required per unit. Below is the working for the target cost to achieve next year: Particulars Amount (₹) Target sales value (88,000 units × 500 p.u.) 4,40,00,000 Less: Target profit needed 1,54,00,000 Less: Direct Material cost (88,000 units×150 p.u.) 1,32,00,000 Less: Fixed cost 20,00,000 Less: Proposed increase in marketing and advertising 1,00,000 Less: Proposed group bonus 1,00,000 Target Cost (Variable Overhead and Direct Labor) for the new sales target 1,32,00,000 Given the target cost for direct labour and variable overhead, we need to consider the direct labour rate per hour and the variable overhead rate per hour. Currently each unit requires 3 hours of production for which direct labour is 90per unit and variable overhead is 60per unit. Therefore, the currently direct labour rate 30per hour while variable overhead rate is 20per hour. Revised direct labour rate per hour, increased by 10per hour = 40 per hour while the variable overhead rate remains at 20 per hour. Therefore, the target cost for direct labour and variable overheads is 60per hour. Target production cost per unit (DL+VOH) = 1,32,00,000/88,000 units = 150 per unit Target production time required per unit = Target production cost per unit (DL+VOH)/ target cost for DL and VOH = 150 per unit /60 per hour= 2.50 hours production hours per unit Therefore, in order to achieve its target cost the company should reduce the production time per unit from 3 hours to 2.50 hours, a 0.50 hour reduction.