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	8,400	6,500	7,200	8,100

Each unit requires 0.65 direct labor-hours, and direct laborers are paid $12.00 per hour.

Required:

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 5,000 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 5,000 hours anyway. Any hours worked in excess of 5,000 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answer 1

	1st quarter	2nd quarter	3rd quarter	4th quarter
Units to be produced	8,400	6,500	7,200	8,100
Required labor hour per unit	0.65	0.65	0.65	0.65
Total required hours	5,460	4,225	4,680	5,265
	5,000			5,000
Excess Hours	460	-	-	265
Direct labor per hour cost	$12.00	$12.00	$12.00	$12.00
(5,000 x $12)	$60,000	$60,000	$60,000	$60,000
hours worked in excess	$5,520	$0	$0	$3,180
(460 x $12), (265 x $12)
Total direct labor cost	$65,520	$60,000	$60,000	$63,180