Question

Lunchco Inc. produces picnic tables in a two-step process. Pretreated wood is cut in the Cutting Department and then the lumber is assembled into tables in the Assembly Department. It takes 30 minutes of direct labor time to cut the lumber and the standard hourly labor rate in the Cutting Department is $12. The tables take one hour to assemble and the standard hourly rate in the Assembly Department is $10. If Lunchco’s production budget is 20,000, what is the company’s direct labor budget?

Answer 1

Answer: company’s direct labor budget = $320000

Explanation:

Given that,

Standard hourly labor rate in the Cutting Department = $12

It takes 30 minutes of direct labor time to cut the lumber

Tables take one hour to assemble

Standard hourly rate in the Assembly Department = $10

Lunchco’s production budget = 20,000

Cutting Department =  production budget × direct labor time × Standard hourly labor rate

= 20000 × 0.5 hours/unit × $12/unit

= $120000

Assembly Department = production budget × Tables take one hour to assemble  × Standard hourly labor rate

= 20000 × 1 hour/unit × $10/unit

= $200000

Therefore,

company’s direct labor budget = Assembly Department + Cutting Department

= 200000 + 120000

= $320000