Question

Exercise 8-4 Direct Labor Budget [LO8-5]

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.

Rordan Corporation
Direct Labor Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Direct labor time per unit (hours)
Total direct labor-hours needed
Direct labor cost per hour
Total direct labor cost

REQUIREMENT 2

Rordan Corporation
Direct Labor Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Direct labor time per unit (hours)
Total direct labor-hours needed
Regular hours
Overtime hours
Wages for regular hours
Overtime wages
Total direct labor cost

Answer 1

Rordan Corporation Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Production Units 10200 7500 8100 10400 36200 Direct labor time per unit (hours) 0.45 0.45 0.45 0.45 0.45 Total direct labor-hours needed 4590 3375 3645 4680 16290 Direct labor cost per hour 14 14 14 14 14 Total direct labor cost 64260 47250 51030 65520 228060

REQUIREMENT 2

Rordan Corporation Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Production units 10200 7500 8100 10400 36200 Direct labor time per unit (hours) 0.45 0.45 0.45 0.45 0.45 Total direct labor-hours needed 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 Overtime wages 1890 3780 5670 Total direct labor cost 64890 63000 63000 66780 257670