TOPIC 8

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
direct labor Standard DL cost
Q (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
Example 22
 At
 At Royal,
Royal, each
each unit
unit of
of product
product requires
requires 0.05
0.05 hours
hours of
of direct
direct
labour.
labour.
 The
 The Company
Company has has aa “no
“no layoff”
layoff” policy
policy so
so all
all employees
employees will
will
be
be paid
paid for
for 40
40 hours
hours ofof work
work each
each week.
week.
 In
 In exchange
exchange for for the
the “no
“no layoff”
layoff” policy,
policy, workers
workers agreed
agreed to
to aa
wage
wage rate
rate of
of £10
£10 per
per hour
hour regardless
regardless ofof the
the hours
hours worked
worked (No (No
overtime
overtime pay).
pay).
 For
 For the
the next
next three
three months,
months, thethe direct
direct labour
labour workforce
workforce will
will be
be
paid
paid for
for aa minimum
minimum of of 1,500
1,500 hours
hours per
per month.
month.
 Let’s
Let’s prepare
prepare thethe direct
direct labour
labour budget
budget..
The Direct Labour Budget

From production
budget
The Direct Labour Budget
The Direct Labour Budget

Higher
Higher ofof labour
labour hours
hours required
required
or
or labour
labour hours
hours guaranteed.
guaranteed.
The Direct Labour Budget