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 9,200 7,000 7,600 9,500 Each unit requires 0.35 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 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

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

	1st quarter	2nd quarter	3rd quarter	4th quarter	Year
Production units	9200	7000	7600	9500	33300
Labour hour per unit	0.35	0.35	0.35	0.35	0.35
Labour hour for production	3220	2450	2660	3325	11655
Rate per hour	10	10	10	10	10
Direct labour cost	32200	24500	26600	33250	116550

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.

	1st quarter	2nd quarter	3rd quarter	4th quarter	year
Labour hour for production	3220	2450	2660	3325	11655
Normal hour	3000	3000	3000	3000	12000
Overtime hour	220			325	545
Normal pay	30000	30000	30000	30000	120000
Overtime pay	3300			4875	8175
Total direct labour cost	33300	30000	30000	34875	128175