Read the case study, then complete the questions that follow.
Hasan works for a company that manufactures shower screens. He is the cost centre manager for the production area. For the four products they manufacture, sales at the end of February are in the table below.
Product Unit Value ($)
Basic 150 37,500 (250 per unit)
Standard plus 250 125,000 (500 per unit)
Deluxe 200 150,000 (750 per unit)
Super deluxe 100 100,000 (1000 per unit)
The above production is standard from month to month and the costs involved are below.
Product Labour per unit (hours) Material cost per unit ($) Overhead contribution per unit ($)
Basic 2.0 100 10
Standard plus 3.0 250 20
Deluxe 4.0 480 34
Super deluxe 5.0 600 43
Labour is costed at $50 per hour and includes contributions to leave entitlements and superannuation. Material costs are fixed with a supply contract for the standard quantities required each month.
Hasan is advised that the company has just won an extra special order for the supply of shower screens for a refit of a hotel, and the products are required by the end of March. The quantities and agreed per unit price are below.
Product Required Unit Price agreed per unit ($)
Basic 30 275
Standard plus 50 550
Deluxe 10 750
Super deluxe 5 900
Production for March will now be the usual monthly production as per February above, plus the new contract commitment.
1. Explain in your own words the role of a budget and its relationship with the strategic objectives of an organisation.
2. Determine the total labour required for a standard month’s production and for the additional production in March. You are advised that the total labour availability is 2,400 hours based on normal working hours. Since the existing labour force is nearly fully utilised, are there any issues for Hasan? If so, what options would you investigate and what would you recommend, given that overtime is costed at $75 per hour?
3. What other issues Hasan face? List at least three. For each issue, suggest a contingency plan that you would expect to be in place.
4. Describe the checks that are performed to ensure a budget can be achieved.
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