Question

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2020.

Lowell has a labor contract that calls for a wage increase to $10 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.

Lowell expects to begin the year with 17,580 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 60% of the second following month’s sales.

Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours.

Answer 1

Direct Labor Budget
For the Quarter Ending March 31, 2020
	January	February	March	Total
Production in Units	9760	8160	8120
Direct Labor Hours Per Unit	2.2	2.2	1.5
Total labor Hours Needed	21472	17952	12180
Rate Per Hour	9	9	9
Total Direct Labor	193248	161568	109620	464436
Workings:
	Production Budget
	January	February	March
Sales in Units	10500	11800	8400
Add: Desired Ending Inventory	16840	13200	12920
Total Needs	27340	25000	21320
Less: Beginning Inventory	17580	16840	13200
Required Production Units	9760	8160	8120
Desired Ending Inventory
January	16840	=11800+(8400*60%)
February	13200	=8400+(8000*60%)
March	12920	=8000+(8200*60%)