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Hello tutor,
I came across this question that you explained in the past (https://opentuition.com/topic/budgeting-labour-hours-revision-kit-page-68-qn-16-10/). Is it correct that idle time should be classified as indirect costs?
So in that case, as the question is to calculate the direct labout cost budget, we should account for only 80% of the total labour cost or $10,500 * 80% = $8,400 to arrive at the direct labour cost.
Can you please help me?
Thank you tutor!
I understand your confusion, but when there is always idle time (as there is here) then the whole amount is regarded as a direct cost of the labour. For all labour used in production they are always having to pay more.
Idle time is only an indirect cost when happens for a special reason such as some time idle because a machine breaks down and the labour could not therefore do any work but are still being paid.
Thank you tutor for your answer.
So from your explanation, can I understand that there are 2 kinds of idle time? One is expected and the other is unexpected. And for budgetary, the first will be classified as direct cost of labour and the latter as indirect cost?
Thank you tutor!
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