Q2
Jai Textiles Ltd. has been earning low profits. A special task force appointed for reviewing performance and prospects reports the following:
The Company has 1200 looms working 2 shifts per day. There are 25 sections of 48 looms each. Each section has 24 weavers and a jobber. Thus there are 1250 direct labourers other than indirect labourers and service hands. The working time is between 7 A.M. and 12.00 Mid night comprising 2 Shifts of 8 hours each, with half an hour interval between shifts. The production is 18 Lakhs meters per month and the realization is Rs. 3 per meter. The average wage of the direct labourer is Rs. 800 per month and fixed costs amount to Rs. 175000 per month. The product cost is Rs. 2.25 meter in addition to direct wages.
The following suggestions are to be considered:
a) Labour productivity can be improved by changing the layout of the machines.
b) Given the space available, with the proposed change in layout only 1008 looms can be reinstalled with 48 looms in each section
c) Technically a section of 48 looms can be run with 12 weavers, a helper and a jobber. It will be necessary to increase the wage of direct labour for such sections by Rs. 110 per head per month. There will be some drop in the production per loom. The Company is not for retrenchment of labour.
d) The Company can run a third shift between 12 mid night and 7 am with half an hour interval. However for the six and half hour’s work 8 hours wages will have to be paid.
e) Only 18 lakh meters can be sold at present price of Rs. 3 per meter. There is an export offer for 4.5 lakh meters at Rs. 2.70 lakh meters.
f) As an initial step, the company can switch to 3 shifts working with 12 sections having 25 direct labourers each and 9 sections having 14 direct labourers each. Progressive conversion to 14 heads per sections can be planned as direct labourers retire or voluntarily leave the job. The production with three shifts working will be 22.5 lakh meters. Additions to the fixed costs will amount to Rs. 50000 per month.
Examine the implications of the proposals on the company’s profits and give your advice.
CAclubindia
