Budgeting Labour Hours Revision Kit Page 68 Qn 16.10

RRuksar11y ago

Hello Sir Kindly help me out on this question: 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 labour hours for completion and PR Co anticipates 20 per cent idle time. labour is paid at a rate of $7 per hour. what is the direct labour cost budget for August? my qsn is that in the answer they have used 25% of active time instead of 20% of total time. i dont understand why? please help. thanks

FSFarzana sultana11y ago#1

is the answer 10500?

John MoffatTutor11y ago#2

Farzana: The answer is 10,500, but that is not what Ruksar is asking! Ruksar: In future, if you want me to answer then you should ask in the Ask the Tutor Forum. For every 100 hours that they pay for, there are 20 hours idle and therefore 80 hours worked. So, for every 80 hours worked they will have to pay for 100 hours, again with 20 hours idle. The idle time is 20/80 = 25% of the time worked. So for this question they need 200 x 6 = 1200 hours of work. Therefore they will have to pay for 1200 x 100/80 = 1500 hours. This will cost them 1500 x $7 = $10,500

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