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A company 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 for 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?
the answer in the book calculate Idle time, but as we studied in previous chapters Idle time is considered an Indirect labour, so why is it included in the total
You have not said which book you are using – it is not the BPP Revision Kit (because I have that 🙂 )
Idle time is an indirect cost but only when it is unexpected idle time (for reasons such as the machines breaking down but the workers still have to be paid).
Here the implication is that we are always expecting there to be 20% idle time due to the nature of the work, and when budgeting we build this into the costings of the direct labour.
So if each unit needs 6 hours of work, they will actual have to pay for 100/80 = 5.5 hours at $7 per hour.
Sir, I am wondering from where 5.5 hours came ? I was tricked last time in similar question.
Also, as the idle time will included in direct labour cost.
6×200 = 1200 hours , 1200/0.8 = 1500 hours (including pay for idle time) ,
1500 x 7 = 10,500Is it the correct way ?
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