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	9,600	7,500	7,800	10,100

Each unit requires 0.65 direct labor-hours, and direct laborers are paid $10.00 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 6,000 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 6,000 hours anyway. Any hours worked in excess of 6,000 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answer 1

Solution

Rordan Corporation
Direct labor budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Units to be produced	9600	7500	7800	10100	35000
Direct labor time per unit (hours)	0.65	0.65	0.65	0.65	0.65
Total direct labor-hours needed	6240	4875	5070	6565	22750
Direct labor cost per hour	$                         10	$                         10	$                         10	$                         10	$                         10
Total direct labor cost	$                 62,400	$                 48,750	$                 50,700	$                 65,650	$              227,500

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Rordan Corporation
Direct labor budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Units to be produced	9600	7500	7800	10100	35000
Direct labor time per unit (hours)	0.65	0.65	0.65	0.65	0.65
Total direct labor-hours needed	6240	4875	5070	6565	22750
Regular hours	6000	6000	6000	6000	24000
Overtime hours	240			565	805
Wages for regular hours	$           60,000.00	$           60,000.00	$           60,000.00	$           60,000.00	$        240,000.00
Overtime wages	$             3,600.00			$             8,475.00	$           12,075.00
Total direct labor cost	$           63,600.00	$           60,000.00	$           60,000.00	$           68,475.00	$        252,075.00