Question

The production manager of Rordan Corporation has submitted the following quarterly production forecast for the upcoming fiscal year:

Units to be produced

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

8,000 6,500 7,000 7,500

Each unit requires 0.35 direct labor-hours, and direct laborers are paid $12.00 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 2,600 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 2,600 hours anyway. Any hours worked in excess of 2,600 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	Year
Required production in unit	8000	6500	7000	7500	29000
Direct labour time per unit(hours)	0.35	0.35	0.35	0.35	0.35
Total direct labour hours needed	2800	2275	2450	2625	10150
Direct Labour cost per hour	12	12	12	12	12
Total direct labour cost	33600	27300	29400	31500	121800

2.

	1st quarter	2nd quarter	3rd quarter	4th quarter	Year
Required production in unit	8000	6500	7000	7500	29000
Direct labour time per unit(hours)	0.35	0.35	0.35	0.35	0.35
Total Direct labour hours needed	2800	2275	2450	2625	10150
Regular hours paid	2600	2600	2600	2600	2600
Overtime hours paid	200	0	0	25	7550
Wages for regular hours(12*hours)	31200	31200	31200	31200	124800
Overtime wages(12*1.5*hours)	3600	0	0	450	4050
Total direct labour cost	34800	31200	31200	31650	128850