Question

Presented here are the original overhead budget and the actual costs incurred during April for Piccolo Inc. Piccolo’s managers relate overhead to direct labor hours for planning, control, and product costing purposes. The original budget is based on budgeted production of 20,000 units in 4,000 standard direct labor hours. Actual production of 21,600 units required 4,500 actual direct labor hours.

Answer 1

Question might be incomplete but a KEY is: Piccolo's managers relate Overhead Production to Direct Labour Hours; for the sake or purpose of PLANNING, CONTROL, and PRODUCT COSTING.

If this be the reason for the numerical data within, then we analyze thus:

Step-by-step explanation:

Let's see how the actual data differs from the budgeted data.

20,000 ~ 4,000

21,600 ~ X

Cross multiplying,

X = (21,600×4,000) ÷ 20,000

X = 4,320 direct labour hours

This means that if the actual production followed the budgeted production proportionally, a lesser amount - 4,320 DLH - of direct labour hours would have been used eventually.

How can this information influence the planning, control, and product costing in Piccolo Inc.?

In planning for the next financial period, maybe the month of May, Piccolo's managers can:

(A) Cut down on direct labour hours because the marginal product of actual labour is less than the marginal product of the standard/budgeted labour effort

(B) Control (reduce) the actual units produced if they would spend less on cost/payment for labour

(C) Increase the unit cost or price of goods produced, in order to make more profit and/or offset the increased expenses on direct labour hours.