THE DIRECT
LABOUR BUDGET
DEFINITION
Budget which plots in details about payment
will be paid to labours up to next period .
Labour is divided as:
1. Direct labour
2. Indirect labour
Remarks :
Determine of Direct Labour Hours
(DLH)
Determine of Direct labour Cost (DLC)
Formula :
Direct Labour Hours budget :
Production Volume budget X time
standart to does 1 unit product
(DLH)
Direct labour cost budget :
Amount DLH X wage rate Per DLH
Example:
Tomato Catsup Production Budget of Chili
Company 2015
Tomato Catsup
Quarter (bottles)
I 220
II 230
III 240
IV 260
Direct Labouring hour standard to make one
tomato catsup bottle needs time 0,1 hour
and direct labouring pay per hour Rp. 5000,-.
Asked for:
Make labouring budget for producing that
tomato catsup, include direct labouring hour
budget and direct labor cost budget.
Tomato Catsup of Chili Company
Direct Labor Hour Budget
Year 2015
Using of Direct
Quarter Production Standard Labor Hour
I 220 0,1 22 hours
II 230 0,1 23 hours
III 240 0,1 24 hours
IV 260 0,1 25 hours
A year 95 hours
Tomato Catsup of Chili Company
Direct Labor Cost Budget
Year 2015
Using of
Q direct labor Standard DL cost
(hour) (Rp) (Rp)
I 22 5000 110.000,-
II 23 115.000,-
III 24 120.000,-
IV 26 130.000,-
total 95 5000 475.000,-
Direct Labor Budget
Example 1
Production budget also provides the starting
point for preparing the direct labor cost budget.
Example: Department 1 has a labor cost of $10
per hour. Product A uses 6 hours in Department 1
and Product B uses 4 hours. Department 2 has a
labor cost of $7 per hours. Production A uses 2
hours of Department 2’s labor and Product B uses
½ hour. Prepare a direct labor budget.
Example 1
Department 1 Department 2 Total
Product A (13,500 units)
6 hours per unit x 13,500 81,000
2 hours per unit x 13,500 27,000
Product B (23,600 units)
4 hours x 23,600 units 94,400
½ hour x 23,600 units 11,800
Total hours per department 175,400 38,800
Labor cost per hour X $10 X $7
Total $1,754,000 $271,600 $2,025,600
The Direct Labour Budget
Example 2
At Royal, each unit of product requires 0.05 hours of
direct labour.
The Company has a “no layoff” policy so all employees
will be paid for 40 hours of work each week.
In exchange for the “no layoff” policy, workers agreed
to a wage rate of £10 per hour regardless of the hours
worked (No overtime pay).
For the next three months, the direct labour workforce
will be paid for a minimum of 1,500 hours per month.
Let’s prepare the direct labour budget.
The Direct Labour Budget
April May June Quarter
Production 26,000 46,000 29,000 101,000
Direct labour hours
Labour hours required
Guaranteed labour hours
Labour hours paid
Wage rate
Total direct labour cost From production
budget
The Direct Labour Budget
April May June Quarter
Production 26,000 46,000 29,000 101,000
Direct labour hours 0.05 0.05 0.05 0.05
Labour hours required 1,300 2,300 1,450 5,050
Guaranteed labour hours
Labour hours paid
Wage rate
Total direct labour cost
The Direct Labour Budget
April May June Quarter
Production 26,000 46,000 29,000 101,000
Direct labour hours 0.05 0.05 0.05 0.05
Labour hours required 1,300 2,300 1,450 5,050
Guaranteed labour hours 1,500 1,500 1,500
Labour hours paid 1,500 2,300 1,500 5,300
Wage rate
Total direct labour cost
Higher of labour hours required
or labour hours guaranteed.
The Direct Labour Budget
April May June Quarter
Production 26,000 46,000 29,000 101,000
Direct labour hours 0.05 0.05 0.05 0.05
Labour hours required 1,300 2,300 1,450 5,050
Guaranteed labour hours 1,500 1,500 1,500
Labour hours paid 1,500 2,300 1,500 5,300
Wage rate £ 10 £ 10 £ 10 £ 10
Total direct labour cost £ 15,000 £ 23,000 £ 15,000 £ 53,000
1.
The production budget is as follows:
TW I 100.000
TW II 100.000
TW III 200.000
TW IV 150.000
To produce 1 unit of finished goods takes 5 hours.
Wage per hour is Rp 1000
Arrange a budget for direct labour hour budget and direct
labor cost budget!
2. Production budget data for product B at PT LANCAR in
2018 as follows:
Tw. I = 850 units, Tw. II. 890 units, Tw. III = 950 units and
TW. IV = 1000 units.
The standard direct labor hours per 1 units of the product is
3 DLH and direct labor costs per DLH = $ 10.
You are required to prepare a direct labor budget for
product B!
