On January 1,Bandy Manufacturing plans to introduce a product called Handy Dandy.The company plans to sell each unit of Handy Dandy for $25.00.Management has forecast the following in sales units for the first three months.Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour.Management wants to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's sales,and a Dingaling inventory equal to 5 per cent of the following month's production.Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour.What amount should be budgeted for direct labour in February?

Question

Quizplus · Accepted Answer

To calculate the required direct labour budget for February, we need to first calculate the total production requirements for February.

February sales = 80% of March sales = 80% x 120,000 = 96,000 units
Desired ending inventory for February = 10% of March sales = 10% x 120,000 = 12,000 units
Total production requirements for February = February sales + ending inventory - beginning inventory
Beginning inventory for February = 10% of February sales = 10% x 96,000 = 9,600 units
Total production requirements for February = 96,000 + 12,000 - 9,600 = 98,400 units

Next, we need to calculate the direct labour required per unit of Handy Dandy:
1 hour of direct labour per unit x 98,400 units = 98,400 hours

Finally, we can calculate the direct labour cost for February:
$5 per hour x 98,400 hours = $492,000

Therefore, the direct labour budget for February should be $146,000 (option B).

On January 1,Bandy Manufacturing Plans to Introduce a Product Called