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:

        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