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Abacus Co. manufactures and sells a single product, Sigma. Budget for next period is being set now. Details are as follows:
Expected Sales 10000 units
Opening stock of finished goods 2500 units
Closing stock REQUIRED 1000 units5% of production is expected to be scrap.
Each unit of Sigma takes 5 standard hours to of labor. Labor is currently working at 90% efficiency level.You are required to prepare direct labor budget.
Dear tutor can you explain this question’s solution?
You will obviously have an answer in your Revision Kit (I assume that you are using a Revision Kit from one of the ACCA Approved Publishers as you really should be doing). So please in future ask about whatever it is in the answer that not clear about rather than typing out a full question and expecting to be provided with a full answer.
In order to be able to sell 10,000 units they need to produce 10,000 – 2,500 + 1,000 = 8,500 ‘good’ units.
Since 5% of the units they produce will be scrapped, only 95% of what they make will be ‘good’ units. Therefore they need to be working on 8,500 / 95% = 8,947.37 units.
This should require labour of 8,947.37 x 5 = 44,736.85 hours.
However, since labour is only working at 90% efficiency, for every 100 hours they pay for they only get 90 hours of work. Therefore they need to budget on paying for 44,736.85 / 90% = 49,708 hours.
Yes I am sorry but I did not have any answer to this question as this is not from the Kit but from another source. My answer was the same. Thank you so much for clearing it.
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