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Budgeted production in a factory for next period is 4800 units. each unit requires five labour hours. labour is paid $10 per hour.idle time represents 20% of the total labour time
What is the budgeted labour cost for the next period?
Ans
(4800 units x 5 hours x10 per hour) /0.80= 300000I am not getting the dividing with 0.80 part
Idle time is 20 percent. So that means total labour hours that you will pay will also include that 20% as well. It takes 5 hours to make one unit but that is only time that is spent on making it. You should also account for the time spent idle when you pay for your labour. To do that we first calculate the total hours required to make all units (4800*5) and that will give us 80 percent of hours that needs to be paid. So we divide it by 0.80 or multiply by 80%
Hope that makes sense.
If I multiply by 80 % I get 192 000
And if I divide by 0.80 it’s 300 000Is it not supposed to be like this:
4800*5= 24000hrs
Of those hrs 0.20 or 20% represent idle hrsSo 20%*24000= 4800
24 000-4800= 19200*10
= $192000*. OR
4800*5*10*0.80= $192000
4800*5*10*80%=$192000
Please assist
Welcome to the Opentuition forums. You have to account for idle time. In other words you divide by 0.8 in order to work out total budgeted labour cost. When idle nothing can be made. You need the extra hours- 30000 instead of 24000 to cover the expected 6000 hours of idle time. Hope this helps.
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