Question

In: Accounting

A significant difference between the direct material purchases budget and the direct labor budget is that...

A significant difference between the direct material purchases budget and the direct labor budget is that the direct material purchases budget

Group of answer choices

is constructed for each quarter, while the direct labor budget is constructed for each pay period.

considers beginning and ending inventory amounts, which are not part of the direct labor budget.

is based on units sold, while the direct labor budget is based on units produced.

is constructed from the top down, while the direct labor budget uses a bottom-up approach.

Solutions

Expert Solution

Answer:

Option B: Considers beginning and ending inventory, which is not part of the direct labor budget.

Explanation:

Direct Material Budget shows the raw material required in the budgeted period and the amount to be paid for such material.

Direct Labor Budget shows the number of hours required for the production and the amount paid for such hours.

Direct Material Budget considers opening and closing inventory whereas Direct Labor Budget does not.

The format of Direct Material Budget is:

Production required
Material per unit
Total material
Add: Closing stock of Raw Material
Total Requirement
Less: Opening stock of Raw Material
Purchases

The format of Direct Labor Budget is:

Particulars
Units to produce
Multiply by: Direct labor per hours
Hours needed
Cost per hour
Total budgeted direct labor cost


Also, Material and Labor budgets can be constructed for any period depending on the management.

Both these budgets are based on the units produced and both use a top-down approach.

Hence,

Option 'B' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.


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