THE COSTS
DIRECT LABOR COST BUDGET

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                                                       .
            The production budget also provides the starting point for preparing the direct labor cost budget. For the company Colt Manufacturing, Inc. the labor requirements for each unit of product are estimated as follows:

    Wallet:                                                        Handbag:
    Cut Department: 0.10 hour per unit                                  Cut Department: 0.15 hour per unit
    Sewing Department: 0.25 hour per unit                             Sewing Department: 0.40 hours per unit

            Based on this data and the production budget, Colt Manufacturing, Inc. prepares the direct labor budget. As shown in the table below, for Colt Manufacturing, Inc., to produce 520,000 wallets, 52,000 hours (520,000 units X 0.10 hours per unit) of labor in the Cutting Department are required. Likewise, to produce 292,000 handbags, 43,800 hours (292,000 units X 0.15 hours per unit) of labor in the cutting department would are required. In a similar manner, we can determine the direct labor hours needed in the Sewing department to achieve the budgeted production. Multiplying the total hours of manpower needed by each department by the estimated cost per hour gives us the total cost of direct labor for each department.

    Colt Manufacturing, Inc.
    Direct Labor Cost Budget
    For the Year Ending December 31, 2008
                               .
    Cutting
    Sewing
    Total
    Hours required for production (*)


       Wallet (Note A)
    52,000
    130,000

       Handbag (Note B)
    43,800
    116,800

      Total
    95,800
    246,800

    Rate per hour
    X  $12.00
    X  $15.00

    Total Direct Labot Cost
    $1,149,600
    $3,702,000
    $4,851,600

    * Hours required for production:
      Note A: Cutting Department: 520,000 units X 0.10 hours per unit = 52,000 hours
      Sewing Department: 520,000 units X 0.25 hours per unit = 130,000 hours 

    Note B: Cutting: 292,000 units X 0.15 hours per unit = 43,800 hours
      Sewing: 292,000 units X 0.40 hours per unit = 116,800 hours

     




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