ACCA Applied Knowledge · Management Accounting · Budget preparation
Zeta Co plans to produce 4,500 units of a product next month. Each unit needs 2.5 standard labour hours. Employees are paid $12 per hour. What is the budgeted direct labour cost for the month?
The budgeted direct labour cost is $135,000. Production of 4,500 units at 2.5 hours each needs 11,250 standard hours, and at $12 per hour this gives $135,000. Using units alone ignores the hours per unit and understates the cost.
- A$112,500
- B$135,000Correct
- C$54,000
- D$11,250
Explanation
Standard hours = 4,500 x 2.5 = 11,250 hours. Cost = 11,250 x $12 = $135,000. The figure $112,500 results from multiplying units by hours and then by $10, and $54,000 ignores the 2.5 hours (4,500 x $12).
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