Problem
Below are the cost data (in Php) of Afternoon Set Manufacturing Company (ASMC) after producing 1,000 units of finished goods for the current year:
Material A P 120,000
Material B 240,000
Material C 360,000
Direct labor 210,000
Overhead-fixed 250,000
Overhead-variable 80,000
Total cost P 1,260,000
Task
I. Prepare the estimated manufacturing cost for the coming year for 1,300 units based on the following assumptions:
i. Materials A, B, and C are variable costs and will increase by 5%, 8%, and 2%, respectively.
ii. Direct labor is at P210 per unit of finished goods by regular employees and will increase by 7% due to mandated wage change.
iii. Fixed cost is mainly plant depreciation.
II. To reduce cost or improve productivity, make your recommendations based on the additional information supported with explanations, computations and your assumptions if needed:
i. The materials are sourced from local traders (engaged in buying and selling).
ii. At the minimum wage rate or contractor's rate, the cost of labor could have been at P180 per unit only.
iii. The plant capacity is 1,800 units and can efficiently operate at 80% of capacity.