The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fi scal year: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced . . . . 8,000 6,500 7,000 7,500 Each unit requires 0.35 direct labor-hours, and direct laborers are paid $12.00 per hour. Required: 1. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. 2. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the direct labor workforce is not adjusted each quarter. Instead, assume that the company’s direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 2,600 hours of work each quarter. If the number of required direct labor-hours is less than this number, the workers are paid for 2,600 hours anyway. Any hours worked in excess of 2,600 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for direct labor.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
EXERCISE 9–4 Direct Labor Budget [LO5]
The production manager of Rordan Corporation has submitted the following
produced by quarter for the upcoming fi scal year:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced . . . . 8,000 6,500 7,000 7,500
Each unit requires 0.35 direct labor-hours, and direct laborers are paid $12.00 per hour.
Required:
1. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that the
direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
2. Construct the company’s direct labor budget for the upcoming fi scal year, assuming that
the direct labor workforce is not adjusted each quarter. Instead, assume that the company’s
direct labor workforce consists of permanent employees who are guaranteed to be paid for
at least 2,600 hours of work each quarter. If the number of required direct labor-hours is
less than this number, the workers are paid for 2,600 hours anyway. Any hours worked in
excess of 2,600 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate
for direct labor.
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