Question

# RJ Company plans to sell 100,000 units in March and 120,000 units in April. RJ’s policy...

RJ Company plans to sell 100,000 units in March and 120,000 units in April. RJ’s policy is that 15% of the following month’s sales units must be in ending finished goods inventory.

It takes 15 minutes of direct labor time to make one finished unit. Direct labor wages average \$20 per hour.

Variable manufacturing overhead is allocated at the rate of \$3 per direct labor hour. Fixed manufacturing overhead is budgeted at \$44,500 per month.

Calculate the direct labor costs budgeted for March.

Calculate the budgeted manufacturing overhead for March.

Production in March = March sales in units + 15% of April sales in units - 15% of March sales in units

= 100,000 + (120,000 * 15%) - (100,000 * 15%)

= 100,000 + 18,000 - 15,000

= 103,000 units

Direct labor hours for March = 103,000 units produced * 15 minutes per unit / 60 minutes per hour

= 25,750 hours

Direct labor costs budgeted for March = 25,750 hours * \$20 per hour

= \$515,000

= (25,750 labour hours * \$3 per labour hour) + \$44,500

= \$121,750