T Co 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 of 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?
Answer:
Active hours required for production = 200 x 6hrs = 1200 Allowance for idle time(20% of total time = 25% of active time) = 300 Total hrs to be for = 1500 x $7ph
Direct labour cost budget = $10500.
Please can you explain how the allowance for idle time was calculated?