The management of XYZ Ltd. is worried about the increasing labor turnover in the factory and before analyzing the causes and taking remedial steps, they want to have an idea of the profit foregone as a result of labor turnover during the last year.
Last years sales amounted to Rs.83, 03, 300 and the profit/volume ratio was 20%. The total number of actual hours worked by the direct labor force was 4.45 lakhs. As a result of the delays by the Personnel department in filling vacancies due to labor turnover, 1, 00, 000 potentially productive hours were lost. The actual direct labor hours included 30, 000 hours attributable to training new recruits, out of which, half of the hours were unproductive.
The cost incurred consequent on labor turnover revealed, on analysis the following.
Settlement cost due to leaving: Rs.43, 820
Recruitment costs: Rs.26, 740
Selection costs: Rs.12, 750
Training costs: Rs.30, 490
Assuming that the potential production lost as a consequence of labor turnover could have been sold at prevailing prices, find the profit foregone last year on account of labor turnover.