Question

Exercise 7-4 Direct Labor Budget [LO7-5]

The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	10,200	7,500	8,100	10,400

Each unit requires 0.45 direct labor-hours, and direct laborers are paid $14.00 per hour.

Required:
1.	Complete the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. (Round "Direct labor time per unit (hours)" answers to 2 decimal places.)

     

2.

Complete 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 4,500 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 4,500 hours anyway. Any hours worked in excess of 4,500 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor. (Input all amounts as positive values.)

     

Answer 1

Solution:
1.	Rordan Corporation
	Direct labor budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Required production in units	10,200	7500	8,100	10,400	36,200
	Direct labor time per unit (hours)	0.45	0.45	0.45	0.45	0.45
	Total direct labor-hours needed	4,590	3,375	3,645	4,680	16,290
	Direct labor cost per hour	14	14	14	14	14
	Total direct labor cost	64,260	47,250	51,030	65,520	228,060
Working Notes:
	Rordan Corporation
	Direct labor budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
a	Required production in units	10,200	7500	8,100	10,400	36,200
b	Direct labor time per unit (hours)	0.45	0.45	0.45	0.45	0.45
c = a x b	Total direct labor-hours needed	4,590	3,375	3,645	4,680	16,290
d	Direct labor cost per hour	14	14	14	14	14
e= c x d	Total direct labor cost	64,260	47,250	51,030	65,520	228,060
2.
	Rordan Corporation
	Direct labor budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Total direct labor-hours needed	4,590	3,375	3,645	4,680	16,290
	Regular hours paid	4,500	4,500	4,500	4,500	18,000
	Overtime hours paid	90	0	0	180	270
	Wages for regular hours	63,000	63,000	63,000	63,000	252,000
	Overtime wages	1,890	0	0	3,780	5,670
	Total direct labor cost	64,890	63,000	63,000	66,780	257,670
Working Notes:
	Rordan Corporation
	Direct labor budget
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
	Total direct labor-hours needed	4,590	3,375	3,645	4,680	16,290
	(Calculated in 1. above)
	Regular hours paid	4,500	4,500	4,500	4,500	18,000
	Overtime hours paid	90	0	0	180	270
	[hours needed more than 4500]	[4590-4500=90]	no need	no need	[4680-4500=180]
a	Wages for regular hours	63,000	63,000	63,000	63,000	252,000
	[regular hours x $14 per hours]
b	Overtime wages	1,890	0	0	3,780	5,670
	[Overtime hours x $14 x 1.5 ]	[90 x 14 x 1.5 ]			[180 x 14 x 1.5 ]
c=a+b	Total direct labor cost	64,890	63,000	63,000	66,780	257,670
Notes:	To understand the calculation done see in 1st column of working notes & calculation shown in brackets
Please feel free to ask if anything about above solution in comment section of the question.