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Vargas Corporation is working on its direct labor budget for the next two months. Each unit...

Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.95 direct labor-hours. The direct labor rate is $13.00 per direct labor-hour. The production budget calls for producing 8,900 units in October and 8,700 units in November. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 8,490 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

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Answer #1
October November
Output 8,900 units 8,700 units
Direct labor-hours per unit 0.95 0.95
Total direct labor-hours needed 8,900 x 0.95 = 8,455 8,700 x 0.95 = 8,265
Minimum guaranteed direct labor-hours 8,490 8,490
Direct labor rate $13.00 per direct labor-hour $13.00 per direct labor-hour
Direct labor cost 8,490 x 13 = $110,370 8,490 x 13 = $110,370

Total combined direct labor cost for the two months = $110,370 + $110,370

= $220,740

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