Margo Company manufactures a product that takes 10 direct labor hours to produce. Margo's
Budgeted sales are 2,000 units in August and 2,500 units in September. Margo's ending finished
Goods inventory is budgeted to be 20% of the following month's sales. How much was Margo's
Budgeted direct labor cost for the month of August, assuming that the hourly wage rate is $15.00?

Question

Quizplus · Accepted Answer

To calculate the budgeted direct labor cost for August, first determine the required production in units. The ending inventory for August is 20% of September's sales (2,500 units), which equals 500 units. Therefore, the total units needed for August are the sum of August's sales (2,000 units) and the ending inventory (500 units), minus the beginning inventory (assumed to be the same as the ending inventory of the previous month, which is 20% of August's sales, or 400 units). This results in 2,100 units to be produced in August (2,000 + 500 - 400). Each unit requires 10 direct labor hours, so the total direct labor hours needed are 21,000 (2,100 units * 10 hours). At an hourly wage rate of $15.00, the total direct labor cost for August is $315,000 (21,000 hours * $15.00/hour).

Margo Company Manufactures a Product That Takes 10 Direct Labor