Question

GM is thinking ahead and budgeting for direct labor for the next 2 months. Each unit of output requires 0.15 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour. The production budget calls for producing 6,500 units in April and 6,200 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,000 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

Answer 1

Solution:
Given:
	April	May
Each unit Requires	0.15 Direct Labour hour	0.15 Direct Labour hour
Labour rate per hour	$7 Per hour	$7 Per hour
Units to be produced	6500 Units	6200 Units
Total labour hours required to produce units	975	930
(Labour hours per unit *No of units to be produced)	(0.15*6500)	(0.15*6200)
Min Labour hours to be paid each month	1000 hours	1000 hours
It has been given that irrespective of labour hours worked , labourers are assured minimum payment of 1000
labour hours
	April	May
Total labour hours required to produce units	975 labour hours	930 labour hours
Min Labour hours to be paid each month	1000 hours	1000 hours
Labour cost = Minimum labours hours or Labour hours worked whichever is higher *Labour rate per hour
As Minimum labour is greater than Labour hours worked
Labour cost = Min Labour hours worked *Labour rate per hour for each month
	April	May	Total
Min Labour hours to be paid each month	1000 hours	1000 hours
Labour rate per hour	$7 Per hour	$7 Per hour
Labour Cost	$7000	$7000	$14000
	(1000*$7)	(1000*$7)
The total combined Direct labour cost = $14000