Question

Pabon Corporation makes one product. Budgeted unit sales for August and September are 11,100 and 12,600 units, respectively. The ending finished goods inventory equals 40% of the following month's sales. The direct labor wage rate is $19.00 per hour. Each unit of finished goods requires 2.5 direct labor-hours. The estimated direct labor cost for August is closest to:

(A) $222,300
(B) $29,250
(C) $389,000
(D) $555,750

Answer 1

Answer:

(D) $555,750

Explanation:

The computation of the estimated direct cost is shown below:

=  (Sales revenue - opening stock + beginning stock) × direct labor  hours × direct labor wage rate

=  ($11,100 - $4,440 + $5,040) × 2.5 hours × $19

= $11,700  × 2.5 hours × $19

= $555,750

The  opening stock = August sales × given percentage

                                = $11,100 × 40%

                                = $4,440

The closing stock  = September sales × given percentage

                                = $12,600 × 40%

                                = $5,040