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Hello John,
From one exam kit:
A company manufactures a single product. Budgeted production output of product M during august is 200 units. Each unit of product M requires 6 h of labour for completion and the company anticipates 20% idle time. Labour is paid at a rate of 7$ per h. What is the direct labour cost budget for August?
SOLUTION:
Active hours required for production = 200x6h= 1200.
Allowance for idle time (20% of total time = 25% of active time) = 300
Total hours to paid for = 1500
x 7$ p.h. 10,500$.I totally don’t get the point of this -> (20% of total time = 25% of active time)
Honestly, it does not make any whatsoever sense.
Please kindly advise.
Thanks
Cheers
Suppose they pay for 100 hours. 20 hours will be idle and therefore 80 hours will be worked.
So…putting it the other way round…for every 80 hours worked, then the idle time will be 20 hours. So the idle time is 20/80 = 25% of the hours worked.
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