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Hepburn Corporation's sales price is $30 per unit. Unit sales information is presented below:
Management estimates that 2% of credit sales are uncollectible. Of the remaining credit sales, 30 percent are collected in the month of sale and the remainder in the following month. The March 31 ending inventory is 5,500 units, and Hepburn wants to have 10% of the next month's sales in ending finished goods inventory.
-Each finished unit requires 2 direct labor hours.The average direct labor rate is $14 per hour.What amount should Hepburn budget for direct labor for April?

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Hepburn Corporation's sales price is $30 per unit. Unit sales information is presented below:
  Management estimates that 2% of credit sales are uncollectible. Of the remaining credit sales, 30 percent are collected in the month of sale and the remainder in the following month. The March 31 ending inventory is 5,500 units, and Hepburn wants to have 10% of the next month's sales in ending finished goods inventory.
-Each finished unit requires 2 direct labor hours.The average direct labor rate is $14 per hour.What amount should Hepburn budget for direct labor for April?

Quizplus · Accepted Answer

To determine the budgeted direct labor cost for April, we need to first determine the budgeted production volume. 
Beginning finished goods inventory = 10% of next month's sales
Target ending finished goods inventory = 10% of next month's sales
Units to be produced = Expected sales + Target ending finished goods inventory - Beginning finished goods inventory
Expected sales = Credit sales + Cash sales
Credit sales = Sales price per unit * Expected unit credit sales
Expected unit credit sales = Unit sales * (1 - %uncollectible) = 80,000 * (1 - 0.02) = 78,400 units
Credit sales = $30 * 78,400 units = $2,352,000
Cash sales = $1,000,000 (given)
Expected sales = $2,352,000 + $1,000,000 = $3,352,000

Units to be produced = 78,400 + (10% * 78,400) - (10% * 74,700) = 10,928 units

Total direct labor hours = Units to be produced * Direct labor hours per unit = 10,928 units * 2 hours per unit = 21,856 hours

Budgeted direct labor cost = Total direct labor hours * Direct labor rate per hour = 21,856 hours * $14 per hour = $306,784

Therefore, the correct answer is B.

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