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	8,000	8,300	10,600

Each unit requires 0.25 direct labor-hours, and direct laborers are paid $16.00 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 2,400 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 2,400 hours anyway. Any hours worked in excess of 2,400 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answer 1

1. Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget would be:

		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Units to be produced.........................	10600	8000	8300	10600	37500
	Direct labor time per unit (hours)......	—0.25	—0.25	—0.25	—0.25	—0.25
	Total direct labor hours needed.........	2650	2000	2075	2650	9375
	Direct labor cost per hour..................	—$16.00	—$16.00	—$16.00	—$16.00	—$16.00
	Total direct labor cost........................	$42400	$32000	$33200	$42400	$150000

2. Assuming that the direct labor workforce is not adjusted each quarter and that overtime wages are paid, the direct labor budget would be:

		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Units to be produced...............................	10600	8000	8300	10600	37500
	Direct labor time per unit (hours)............	—0.25	—0.25	—0.25	—0.25	—0.25
	Total direct labor hours needed...............	2650	2000	2075	2650	9375
	Regular hours paid...................................	2400	2400	2400	2400	9600
	Overtime hours paid................................	250	0	0	250	500
	Wages for regular hours (@ $16.00 per hour)...........(2400*$16)	$38400	$38400	$38400	$38400	$153600
	Overtime wages (@ $16.00 per hour — 1.5 hours).............................................	(250*$16*1.5) 6000	0	0	(250*$16*1.5) 6000	12000
	Total direct labor cost..............................	$44400	$38400	$38400	$44400	$165600