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a company manufactures a single product M. budgeted production output of product M during august is 200 units. each unit of product m requires 6 labor hours for completion and PR Co anticipates 20 percent idle time. labor is paid at a rate of $7 per hour.the direct labor cost budget for august is.
a)6720
b)8400
c)10080
d)10500sir in thus question i am also facing the same percentage problem the question is telling us that there is 20 percent idle time but in the exam kit solution its is taking 25 percent instead of 20 percent please explain thank you
For every 100 hours paid, 20 will be idle, and therefore 80 worked.
So for every 80 worked, they will have been idle for 20 hours.20/80 = 25% of the time worked
Dear Moffat,
I have no problem regarding the calculation of the above question. But I am confused with the wording of the question. the question is asking what is the DIRECT labour cost?
As far as I know the money which is paid for the idle time is an INDIRECT labour cost.In fact I think :
Total labour cost = 10,500
Direct labour cost = 6 hrs * $7 * 200 = 8400
Indirect labour cost = 10,500 – 8,400 = 2,100I mean if the question were asking about the TOTAL labour cost, then the answer was 10,500 but here it is clearly asks for the DIRECT labour cost)
Would you please help me on this matter.
ThanksIdle time is an indirect cost when it has not been budgeted for.
Here, the idle time exists as part of the process and is therefore taken into account in arriving at the labour cost per unit, as explained in my previous posts.
Sir is this method for solving these type of question correct?
I simply divided 200 by 80 then × by 100=250 units which ×6 then ×7 =10500
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