Hi Sir, Hope you are in good health.
I was going through the kaplan textbook illustrations and practice questions after taking your lectures. I stuck at a labour budget question.
Q- A contract company firm estimates that it will take 2520 actual cleaning hours to clean an office block. Unavoidable intrruptions and lost time are estimated to take 10 % of workers time. if wage rate is $8.50 per hour , whats the budgeted labour cost.
Answer provided in book - Actual expected time = 2520/0.9= 2800 hours
budgeted labour cost = 2800 x 8.50 = $23,800
How i calculated = 2520 x 110% = 2772 hours
2772 x 8.5 = $ 23,562
Why it has to be divided by .9 or 90% . I simply took additional 10 % of the worker's time and calculated the cost. and its wrong.
Thanks in advance
Ask the Tutor ACCA MA
Labour budget
6y ago#1If lost time is 10% it means that for every 100 hours that is paid, then 10 hours will be lost and only 90 hours will be worked.
Therefore for every 90 hours of work they will expect to have to pay for 100 hours.
So if they estimate that they need 2,520 hours of work, they will be expecting to have to pay for 100/90 x 2,520 = 2,800 hours.
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