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	11,000	8,000	8,500	10,800

Each unit requires 0.75 direct labor-hours, and direct laborers are paid $16.00 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 8,000 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 8,000 hours anyway. Any hours worked in excess of 8,000 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answer 1

1) Direct labor budget

	1st quarter	2nd quarter	3rd quarter	4th quarter	Year
Unit to be produced	11000	8000	8500	10800	38300
Labor hour per unit	0.75	0.75	0.75	0.75	0.75
Hour needed for production	8250	6000	6375	8100	28725
Rate per hour	16	16	16	16	16
Direct labor cost	132000	96000	102000	129600	459600

2) Direct labor budget

	1st quarter	2nd quarter	3rd quarter	4th quarter	Year
Unit to be produced	11000	8000	8500	10800	38300
Labor hour per unit	0.75	0.75	0.75	0.75	0.75
Hour needed for production	8250	6000	6375	8100	28725
Regular hour	8000	8000	8000	8000	32000
Overtime hour	250			100	350
Wages for regular hour	128000	128000	128000	128000	512000
Overtime wages	6000			2400	8400
Total Direct labor cost	134000	128000	128000	130400	520400