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X3. The management of Sunshine Ltd wants to have an idea of the profit lost/foregone...

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Accounting

X3. The management of Sunshine Ltd wants to have an idea of the profit lost/foregone as a result of labour turnover last year.

Last year sales accounted to $66,00,000 and the P/V Ratio was 20%. The total number of actual hours worked by the direct labour force was 3.45 lakh. As a result of the delays by the personnel department in filling vacancies due to labour turnover, 75,000 potentially productive hours were lost. The actual direct labour hours included 30,000 hours attributable to training new recruits, out of which half of the hours were unproductive. The costs incurred consequent to labour turnover revealed on analysis the following:

$

Settlement cost due to leaving 27,420 Recruitment cost 18,725

Selection cost 12,750 Training cost 16,105

Assuming that the potential production lost due to labour turnover could have been sold at prevailing prices, ascertain the profit foregone/lost last year on account of labour turnover.

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