Question

Pabon Corporation makes one product. Budgeted unit sales for August and September are 11,100 and 12,600 units, respectively. The ending finished goods inventory equals 40% of the following month's sales. The direct labor wage rate is $19.00 per hour. Each unit of finished goods requires 2.5 direct labor-hours. The estimated direct labor cost for August is closest to:

Answer 1

Answer:

$555,750

Explanation:

First we need to calculate the units produced in the month of August.

We know that the opening inventory of finished goods is equal to 40% of that month's sale.

• The Opening inventory of August will be: 11100 * 0.4 = 4440

• Units produced in august relating to August sales will be 11100 - 4440 = 6660
• Units produced in August relating to September's sales will be 12600 * 0.4 = 5040
• Total units produced in August = 6660 + 5040 = 11700 units
• labour hours required for August = 11700 * 2.5 = 29250 direct labor hours
• So, Direct labor Cost = 29250 * 19 = 555750