Deep Valley Foods manufactures a product that is first smoked and then packed fo

Question

Deep Valley Foods manufactures a product that is first smoked and then packed for shipment to customers. During a normal month the product’s direct labor cost per pound is budgeted using the following information.

The budget for March calls for the production of 500,000 pounds of product. However, March’s direct labor costs for smoking are expected to be 5 percent above normal due to anticipated scheduling inefficiencies. Yet direct labor costs in the packing room are expected to be 4 percent below normal because of changes in equipment layout.

Prepare a budget for direct labor costs in March using three column headings: Total, Smoking, and Packing.

Direct
Labor Hours
(per pound) Budgeted Direct
Labor Cost
(per hour) Process: Smoking 0.08 $20 Packing 0.06 12

Explanation / Answer

SOLUTION

Smoking Packing Budgeted punds for production 500,000 500,000 Direct labor hours per pound 0.08 0.06 Required labor hours 40,000 30,000 Direct labor cost per hour ($20*105%) ($12*96%) $21.00 $11.52 Total direct labor cost $840,000 $345,600

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