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ACCA Applied Knowledge · Management Accounting · Budget preparation

Brook Co budgets to make 6,000 units. Each unit requires 3 standard hours of direct labour. Workers are expected to be idle for 10% of the hours they are paid for. How many hours must be paid for in the labour budget?

The budget must include 20,000 paid hours. The 18,000 productive hours needed represent only 90% of the hours paid because 10% is idle time, so dividing 18,000 by 0.90 gives 20,000. Adding 10% to 18,000 uses the wrong base.

  1. A18,000 hours
  2. B19,800 hours
  3. C20,000 hoursCorrect
  4. D16,200 hours

Explanation

Productive hours needed = 6,000 x 3 = 18,000. These are 90% of paid hours, so paid hours = 18,000 / 0.90 = 20,000. Adding 10% to 18,000 gives 19,800, which wrongly applies the idle time to productive hours rather than paid hours.

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