Exercise 7-4 Direct Labor Budget [LO7-5] The production manager of Rordan Corpor

Question

Exercise 7-4 Direct Labor Budget [LO7-5]

The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

Complete the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. (Round "Direct labor time per unit (hours)" answers to 2 decimal places.)

Complete 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. (Input all amounts as positive values.)

The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

Explanation / Answer

Solution: 1. Rordan Corporation Direct labor budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Required production in units 10,200 7500 8,100 10,400 36,200 Direct labor time per unit (hours) 0.45 0.45 0.45 0.45 0.45 Total direct labor-hours needed 4,590 3,375 3,645 4,680 16,290 Direct labor cost per hour 14 14 14 14 14 Total direct labor cost 64,260 47,250 51,030 65,520 228,060 Working Notes: Rordan Corporation Direct labor budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year a Required production in units 10,200 7500 8,100 10,400 36,200 b Direct labor time per unit (hours) 0.45 0.45 0.45 0.45 0.45 c = a x b Total direct labor-hours needed 4,590 3,375 3,645 4,680 16,290 d Direct labor cost per hour 14 14 14 14 14 e= c x d Total direct labor cost 64,260 47,250 51,030 65,520 228,060 2. Rordan Corporation Direct labor budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Total direct labor-hours needed 4,590 3,375 3,645 4,680 16,290 Regular hours paid 4,500 4,500 4,500 4,500 18,000 Overtime hours paid 90 0 0 180 270 Wages for regular hours 63,000 63,000 63,000 63,000 252,000 Overtime wages 1,890 0 0 3,780 5,670 Total direct labor cost 64,890 63,000 63,000 66,780 257,670 Working Notes: Rordan Corporation Direct labor budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Total direct labor-hours needed 4,590 3,375 3,645 4,680 16,290 (Calculated in 1. above) Regular hours paid 4,500 4,500 4,500 4,500 18,000 Overtime hours paid 90 0 0 180 270 [hours needed more than 4500] [4590-4500=90] no need no need [4680-4500=180] a Wages for regular hours 63,000 63,000 63,000 63,000 252,000 [regular hours x $14 per hours] b Overtime wages 1,890 0 0 3,780 5,670 [Overtime hours x $14 x 1.5 ] [90 x 14 x 1.5 ] [180 x 14 x 1.5 ] c=a+b Total direct labor cost 64,890 63,000 63,000 66,780 257,670 Notes: To understand the calculation done see in 1st column of working notes & calculation shown in brackets Please feel free to ask if anything about above solution in comment section of the question.

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