Question

Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.87 direct labor-hours. The direct labor rate is $12.20 per direct labor-hour. The production budget calls for producing 8,100 units in October and 7,900 units in November. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 7,100 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

Answer 1

Ans:

Calculation of total direct labor cost for 2 months;

Hours per Unit : 0.87

Cost Per Hour : $12.20

Units Produced :

October : 8,100

November: 7,900

Minimum Labor Hours each Month : 7,100

Labor Hours required October : 8,100 * 0.87 = 7,047

Labor Hours required November : 7,900 * 0.87 = 6,873

So minimum payment Each month : 7,100 Hours

Total direct labor Cost : 7,100 * $12.20 * 2 = $173,240

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