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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

Gupta Textiles budgets 5,000 units in a month. Each unit needs 4 direct labour hours. Workers are paid Rs 50 per hour, but a 20% idle time is expected in the hours paid for. What is the budgeted direct labour cost?

The budgeted labour cost is Rs 12,50,000. Productive hours needed are 20,000, and since idle time is 20% of hours paid, paid hours are 20,000 divided by 0.80, which is 25,000. Multiplying by Rs 50 per hour gives Rs 12,50,000.

  1. ARs 10,00,000
  2. BRs 8,00,000
  3. CRs 12,00,000
  4. DRs 12,50,000Correct

Explanation

Productive hours = 5,000 x 4 = 20,000. If idle time is 20% of hours paid, hours paid = 20,000 / 0.80 = 25,000. Cost = 25,000 x 50 = Rs 12,50,000. Rs 12,00,000 wrongly adds 20% on productive hours (24,000 hours).

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