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Budgeted production in a factory for next period is 4,800 units. Each unit requires five labour
hoursto make. Labour is paid $10 per hour. Idle time represents 20% of the total labour time.
What is the budgeted total labour cost for the next period?answer: (4,800 units × 5 hours × $10 per hour) ÷ 0.80 = $300,000
hi i dont get the dividing by 0.80 part
For every hour that they pay for, 0.2 hours will be idle and therefore only 0.8 hours will be worked.
Therefore if they need 0.8 hours of work they will have to pay for 1 hour of labour.
Here they need 5 hours of work and therefore they will have to pay for 5/0.8 = 6.25 hours of labour (and 20% x 6.25 = 1.25 hours idle, leaving 5 hours of work 🙂 )
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