Reference no: EM132596635

Tetley Tea has a highly talented workforce. Consequently, to appease their employees the company constructed a new lounge. The lounge has the capacity to accommodate at least 40 staff members at any point in time. For this reason, management believes that Tetley is the premier employer of choice. The entity commenced the year with a total of 2,800 employees, however, due to recession 50% of this complement was made voluntarily redundant during the year. This surprised senior managements because; at the start of the year they had anticipated for only 600 employees to leave.

The excess was replaced immediately, by highly trained employees. The newly appointed employees had prior work experience either at Blue Mountain Coffee or Grace Kennedy or Jamaica Producer Limited. Due their experience, Tetley's profits before taxes increased by 14%. The profit increase resulted from efficiency gains due to increased productivity as a result of the company's time-based system.

Tetley uses an hourly based system with the aim of spurring productivity. This system pays a basic rate of $25 per hour and overtime depending on whether the staff worked during the evenings or on weekends. Overtime rates are time and a half for evenings and double time for work done on weekends. Notwithstanding this, the current management team wants to ascertain the profitability on its latest production, the green tea blend and herbal tea.

The following data below pertains to the production of 50 boxes (each) of teabags.

                                                         Green tea                              Herbal tea

Direct material per unit in kg            0.10 kg                                0.15 kg

Selling price per unit                       $375                                       $415

Normal time in hours                            250                                       225

Evening time                                    50                                           75

Weekend                                         50                                             50

The company purchased direct material at an average price of $310 per kilogram during the period.

Required:

Question a. How to calculate the labour turnover rate.

Question b. How to calculate the total costs and profits for the 50 boxes of teabags on the assumption that overtime is worked at the request of the customer. Total cost should include material, labour and overheads (if any).

Question c. How to calculate the total costs and profits/losses for the 50 boxes of teabags on the assumption that overtime is worked occasionally to meet production requirements. Total cost should include material, labour and overheads (if any).