Question

[The following information applies to the questions displayed below.] Shadee Corporation expects to sell 580 sun shades in May and 310 in June. Each shade sells for $151. Shadee's beginning and ending finished goods inventories for May are 80 and 60 shades, respectively. Ending finished goods inventory for June will be 70 shades. E8-7 (Algo) Preparing Direct Labor and Manufacturing Overhead Budgets [LO 8-3d] Suppose that each shade takes three direct labor hour to produce and Shadee pays its workers $15 per hour. Additionally, Shadee's fixed manufacturing overhead is $8,000 per month, and variable manufacturing overhead is $12 per unit produced. Required: Prepare Shadee's direct labor budget for May and June.

Answer 1

The direct labor budgets for Shadee Corporation are $25,200 for May and $14,400 for June; calculated by the production requirement in shades, multiplied by the labor hours per shade, and then by the wage rate.

Step-by-step explanation:

To calculate the direct labor budget for Shadee Corporation for the months of May and June, we need to ascertain the number of shades that will be produced in each month, multiply this by the direct labor hours per unit, and then by the hourly wage rate. For May, the production requirement is the sum of the shades to be sold and the desired ending inventory minus the beginning inventory. That is, 580 (to be sold) + 60 (desired ending inventory) - 80 (beginning inventory) equals 560 shades to be produced. At three hours per shade and $15 per hour, the total direct labor cost for May is 560 shades * 3 hours/shade * $15/hour, which equals $25,200.

For June, we follow a similar approach: 310 (to be sold) + 70 (ending inventory) - 60 (begining inventory) yields 320 shades to be produced. So, the direct labor cost for June is 320 shades * 3 hours/shade * $15/hour, amounting to $14,400. Thus, the direct labor budgets for May and June are $25,200 and $14,400 respectively.