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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:
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
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.
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.
Hours required for
Note B: Cutting:
292,000 units X 0.15 hours per unit = 43,800 hours
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