Question

WedGowns Ltd manufactures wedding dresses. The following information relates to the manufacture of gowns:

                                                                         2018                                                                         2019

   Units produced and sold 43,000 52,600

   Direct manufacture labour-hours 22,000 26,000

   Direct materials used (square metres) 130,000 152,000

   Direct manufacture labour cost per hour $16 $17

   Direct materials cost per metre $10 $11

Required:

Prepare an analysis of the change in annual costs from 2018 to 2019 including direct materials, direct manufacturing labor, and total inputs (taking into account - output adjustment, input price change and productivity change). Comment on the performance of WedGowns Ltd

Answer 1

Given the data related to 2018 and 2019, the change in costs from year to year would be analysed as follows.

PARTICULARS    2018 2019

1. Units       43000 52600

2. Manufacturing cloth Used

for producing the units in 1    130000 sq.mt. 152000 sq.mt.

3. Cost of Material per metre 10 11

4. Total cost of Material (2*3) $.1,300,000 $. 1,672,000

5. Labour Cost per Hour    $16 $17

6. Labour Hours Used 22000 26000

7. Total Labour Cost (5*6)    $352,000 $442,000

8. Total Cost of

Manufacturing (4+7)    $1,652,000 $2,114,000

Analysis of the costs:

9. The perunit cost of the gown.

(8/1) $ 38.42 $40.19

By analysing the per unit cost of the gown, it is clear that cost producing gown has been increased by $ 1.77

10. Effective labour hrs used in prdoucing

1 gown (5/1)     0.512 hrss. 0.494 hr.

By point 10. it is clear that the labour efficiency has been improved in producing the gown by 0.018 hrs per gown.

11. Effect of labour cost per gown

(7/1) $. 8.19 $. 8.40

By pont 11, it can be observed that the per unit labour cost has been increased.

The increase is due to the reason that labour cost per hour has been increased by $1. Though the effective labour hrs are decreased,

the increase in cost per hour of labour has been more than the efficiency improvement.

12. Material cost per gown (4/1)   $ 30.23 $.31.78

The cost of material has effected the material cost per gown, though the usage of material has been decreased per unit as follows.

13. Cloth used per gown. (2/1)    3.023 sq. mt. 2.89 sq.mt.

Had the labour hrs. effiency remained same, the cost of labour for producing 52600 gowns is as follows.

=Hrs. per gown as per 2018 * cost of labor per hr. in 2019 * total units produced.

= 0.512hrs * 17 *52600

= $ 457,830.4

But, the Labour cost incurred is $. 442,000. Means the efficiency in labour hours has saved the company an amount of $. 15,830.4

Had the usage of material per gown, remained same, the cost of cloth for producing 52600 gowns would be as follows:

= Sq.mt. per gown as in 2018* Cost of cloth per sq.mt in 2019 * Total units produced.

= 3.023 sq.mt * $ 11* 52600

= $. 1,749,107.8

But the Actual cost of Material incurred was $. 1,672,000. Means the Cost the company saved is an amount of $. 77,107.8

Therefore, total cost saved by the company due to increase in efficiency is $ 15,830.4+ $. 77,107.8= $. 92,938.2.

COMMENT ;

Though the cost of material and cost of labour has been increased from 2018 to 2019, the company has saved the cost of $. 92,938.2, due to increase in its efficiency in manufacturing the gown.