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	10,200	7,500	8,100	10,400

Each unit requires 0.45 direct labor-hours, and direct laborers are paid $14.00 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 4,500 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 4,500 hours anyway. Any hours worked in excess of 4,500 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.

Answer 1

1) Direct labour budget

	1st quarter	2nd quarter	3rd quarter	4th quarter	Year
Production units	10200	7500	8100	10400	36200
Labour hour per unit	0.45	0.45	0.45	0.45	0.45
Production labour hour	4590	3375	3645	4680	16290
Rate per hour	14	14	14	14	14
Direct labour cost	64260	47250	51030	65520	228060

2) Direct labour budget

	1st quarter	2nd quarter	3rd quarter	4th quarter	Year
Production labour hour	4590	3375	3645	4680	16290
Regular hours	4500	4500	4500	4500	18000
Overtime hours	90			180	270
Wages for regular hours	63000	63000	63000	63000	252000
Wages for overtime	1890			3780	5670
Direct labour cost	64890	63000	63000	66780	257670