Fantastic Futons goes through two departments in the production process. Each futon requires two direct labor hours in Department A and one hour in Department B. Labor cost is $8 per hour in Department A and $10 per hour in Department B. The labor capacity for a normal eight-hour shift for a month is 50,000 direct labor hours each for both Departments A and B. Overtime is paid at time and a half. What would be the budgeted direct labor cost for January, assuming a budgeted production of 30,000 units?

Question

Quizplus · Accepted Answer

To produce 30,000 units, Fantastic Futons would need 60,000 direct labor hours in Department A (2 hours per unit x 30,000 units) and 30,000 direct labor hours in Department B (1 hour per unit x 30,000 units), for a total of 90,000 direct labor hours.

The budgeted direct labor cost can be calculated as follows:
- Department A: 60,000 hours x $8/hour = $480,000
- Department B: 30,000 hours x $10/hour = $300,000
- Total: $480,000 + $300,000 = $780,000

Since the labor capacity for both departments is 50,000 direct labor hours each for a normal eight-hour shift for a month, the budgeted direct labor cost should not exceed the total cost of 100,000 direct labor hours at regular pay rates. Therefore, overtime is not required and should not be factored into the budgeted direct labor cost.

Therefore, the best choice is C, $820,000.

Fantastic Futons Goes Through Two Departments in the Production Process