Question

Pooler Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.78 direct labor-hours. The direct labor rate is $10.20 per direct labor-hour. The production budget calls for producing 7,000 units in April and 6,800 units in May. 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 5,480 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

In April:

Units of production = 7,000

Rate of labor-hour = 0.78 hours per unit

Total labor hours = Units of production × Rate of labor-hour

                             = 7,000 × 0.78

                             = 5,460

Since this is below the minimum (5,480 hours), the corporation has to pay for 5,480 hours.

Rate of payment = $10.20 per hour

Labor cost = 5,480 × Rate of payment

                  = 5,480 × $10.20

                  = $55,896

In May:

Units of production = 6,800

Rate of labor-hour = 0.78 hours per unit

Total labor hours = Units of production × Rate of labor-hour

                             = 6,800 × 0.78

                             = 5,304

Since this is below the minimum (5,480 hours), the corporation has to pay for 5,480 hours.

Rate of payment = $10.20 per hour

Labor cost = 5,480 × Rate of payment

                  = 5,480 × $10.20

                  = $55,896

Total = Labor cost of April + Labor cost of May

         = 55,896 + 55,896

         = $111,792 (Answer)