Question

Pooler Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.70 direct labor-hours. The direct labor rate is $10.60 per direct labor-hour. The production budget calls for producing 7,600 units in April and 7,400 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

SOLUTION

The total combined direct labor cost for the two months = $116,176

Number of hours required for production in April =7,600 units * 0.70 per direct labor hour

= 5,320 hours

Number of hours required for production in May =7,400 units * 0.70 per direct labor hour

= 5,180 hours

Since, the hours required for production in April and May is within the minimum paid hours to employees, the total cost for each month would be the minimum paid hours.

The total combined direct labor cost = = (Number of Units for April + Number of Units for May ) * Labor Rate

= (5,480 + 5,480) * $10.60

= 10,960 * $10.60

= $116,176