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PJ has budgeted sales for the next two years of 144,000 units per annum spread evenly
throughout each year. The estimated closing inventory at the end of this year is 6,500 units. PJ
wants to change its inventory policy so that it holds inventory equivalent to one month’s sales.
The change in inventory policy will take place at the beginning of next year and will apply for
the next two years.
Each unit produced required two hours of direct labour. The budgeted direct labour rate per
hour is RM15. It is anticipated that 80 per cent of production will be paid at the budgeted rate
and the remainder will be paid at the overtime rate of time and a half. PJ treats overtime costs
as part of direct labour costs.
Required: Calculate the direct labour cost budget for the next year.Ans is 4933500 but i cant do it.can u tell me how to solve?
Inventory has to increase from 6,500 to 144,000/12, ian increase of 5,500 units.
Therefore production in the first year will be 144,000 + 5,500 = 149,500 units.
80% are at normal rate and 20% are at time and a half.
Labour cost =
80% x 149,500 x 2 x 15 + 20% x149,500 x 2 x 15 x 1.5 = 4,933,500
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