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Vargas Corporation is working on its direct labor budget for the next two months
Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.93 direct labor-hours. The direct labor rate is $12.80 per direct labor-hour. The production budget calls for producing 8,700 units in October and 8,500 units in November. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 8,110 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?
Expert Solution
Computation of Total Combined Direct Labor Cost for the Two Months:
Number of hours required for production in October = 8,700 units * 0.93 per direct labor hour = 8,091 hours
Number of hours required for production in November = 8,500 units * 0.93 per direct labor hour = 7,905 hours
Since, the hours required for production in October and November is within the minimum paid hours to employees, the total cost for each month would be the minimum paid hours.
Total Combined Direct Labor Cost = (Number of Units for October + Number of Units for November ) * Labor Rate
= (8,110+8,110) * $12.80
Total Combined Direct Labor Cost = $207,616
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