Question

Question 15

ABC Ltd produces a single product with a single grade of labour. It sales budget and finished goods inventory budget for period 3 are as follows:

Sales                                                    700 units

Opening stock of finished goods      50 units

Closing stock of finished goods         70 units

The goods are inspected only when production work is completed, and it is budgeted that 105 of finished work will be scrapped.

The standard direct labour hour required in producing the product is 3 hours. Labour is paid at GHS5 per hour whereas overtime is paid at a time and half. The budgeted productivity ratio for direct labour is 80%. The company employs 18 direct operatives, who are expected to average 144 working hours each in period 3.

Required

Prepare the production and the direct labour budget for period 3

Answer 1

Production Budget for period 3
Particulars	Units
Sales Units	700
Add: Closing Stock of Finished Goods	70
Less: Opening Stock of Finished Goods	50
Budgeted Production	720
Less: Budgted Scrap Units	105
Net Budgeted Production	615
Working Note for Hours calculation	Hours
Budgeted Hours for Labour (3 hour*720)	2,160
Standard hours for Budgeted Production( 2160/80%)	2,700
Less : Normal Hours (144*18)	2,592
Overtime : Standard Less Normal	108
Labour Budget for Period 3
Particulars	Amount in GHS	Comment
Standard hours Labour Cost (2700*5)	13,500	Paid at normal rate @GHS 5 per hour
Overtime Cost (108*7.5)	810	Paid at 1.5 times of normal rate( 5*1.5=7.50)
Total Labour cost	14,310