+1 862 207 3288 The labour union of Crassus Inc. has demanded a 15% increase in hourly wages in response to the initial offer of 5% made by management.
The management is most reluctant to agree to such a claim but is prepared to consider making anincreased offer providedthat it takes the form of aproductivitydeal. The management now offers a 5% increase on basic hourly rate plus $0.15 for every unit p r o d u c e d.If this is agreed, it is expected thatproductionwould increase by 10% within the budgeted hours (normal factorycapacity).
In order to sell the increasedoutput,the salesdirectorhas estimated that selling price would have to be reduced by 21/2%.
Thedraftbudget for the forthcoming year, excluding the wages and sales increases is given below:
Sales1,500,000 units
Direct m a t e r i a l s
Direct wages
Variable production overhead
Fixed production overhead
Variable salesoverhead(5% of turnover) Fixed sales overhead
Variable distribution overhead Fixed distributionoverhead Fixed administrationoverhead
Profit Required
$’000
1,200 1,800 270
960 300 570
90 120 251
$’000 6,000
(a)
(b)
(c)
(d)
(e)
Calculate the budgeted
results in the following in following circumstances.
(i) Ifthetradeunion claimis acceptedby management
(ii) If the productivity deal is accepted by the trade union
Calculate the minimum output necessary for the productivity deal to be more rewardingtothelaborforce than a 15% pay increase.
Calculate the maximum fall in sales price which would be acceptable to management so as to achieve a profit o f at least $400,000 if the productivity deal is accepted.
Based on your analysis make a persuasive case on behalf of management, supporting the management offer, for use in the forthcoming negotiation
Based on your analysis make a persuasive case on behalf of the labour union, supporting the labour union offer, for use in the forthcoming negotiation
