Question

The production manager of Rordan Corporation has submitted the following quarterly production forecast for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	10,800	8,500	7,100	11,200

Each unit requires 0.25 direct labor-hours, and direct laborers are paid $20.00 per hour.

Required:

1. Prepare the company’s direct labor budget for the upcoming fiscal year. Assume that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.

2. Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is not adjusted each quarter. Instead, assume that the company’s direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 2,500 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 2,500 hours anyway. Any hours worked in excess of 2,500 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answer 1

1
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Required production in units	10800	8500	7100	11200	37600
Direct labor time per unit (hours)	0.25	0.25	0.25	0.25	0.25
Total direct labor-hours needed	2700	2125	1775	2800	9400
Direct labor cost per hour	20.00	20.00	20.00	20.00	20.00
Total direct labor cost	54000	42500	35500	56000	188000
2
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Required production in units	10800	8500	7100	11200	37600
Direct labor time per unit (hours)	0.25	0.25	0.25	0.25	0.25
Total direct labor-hours needed	2700	2125	1775	2800	9400
Regular hours paid	2500	2500	2500	2500	10000
Overtime hours paid	200	0	0	300	500
Wages for regular hours	50000	50000	50000	50000	200000
Overtime wages	6000	0	0	9000	15000
Total direct labor cost	56000	50000	50000	59000	215000