Pooler Corporation is working on its direct labor budget for the next two months
ID: 341415 • Letter: P
Question
Pooler Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.72 direct labor-hours. The direct labor rate is $10.50 per direct labor-hour. The production budget calls for producing 7,500 units in April and 7,300 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 5,480 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?
Explanation / Answer
Direct labor-hours needed for production in April = 7,500 units x 0.72 = 5,400
Direct labor-hours needed for production in May = 7,300 units x 0.72 = 5,256
Even though both month's production needs would require less than 5,480 hours, the company has committed to paying for a minimum of 5,480 hours per month
Total Direct Labor-Hours = 5480 + 5480 = 10,960
Total Combined Direct Labor Cost = 10,960 hours x $10.50 per direct labor-hour = $ 115,080