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	10,600	8,500	7,000	11,100

Each unit requires 0.35 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 3,000 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 3,000 hours anyway. Any hours worked in excess of 3,000 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
Units to be produced	10,600	8,500	7,000	11,100
Direct labor hours per unit	0.35	0.35	0.35	0.35
Total direct labor hour	3,710[10,600*0.35]	2,975[8,500*0.35]	2,450[7,000*0.35]	3,885[11,100*0.35]
Normal hour rate	$20	$20	$20	$20
Direct labor cost	$74,200[$20*3,710]	$59,500[2,975*$20]	$49,000[$20*2,450]	$77,700

2.

>3,000 =1.5*labor hour rate

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	10,600	8,500	7,000	11,100
Direct labor hours per unit	0.35	0.35	0.35	0.35
Total direct labor hour	3,710[10,600*0.35]	2,975[8,500*0.35]	2,450[7,000*0.35]	3,885[11,100*0.35]
Minimum labor hour (A)	3,000	3,000	3,000	3,000
extra hours worked (B)	710[3,710-3,000]	0	0	885
Hourly rate(C)	$20	$20	$20	$20
Rate for additional hour worked D	$30[$20*1.5]	$30	$30	$30
fixed labor cost per quarter E	$60,000[3,000*$20]	$60,000	$60,000	$60,000
EXtra direct labor rate for additional hour F	21,300[B*D]	0	0	$26,550[885*$30]
Total Direct labor cost [E+F]	$81,300	$60,000	$60,000	$86,550

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