Production is budgeted at 12,500 units. Each unit needs 0.6 standard direct labour hours. Idle time is expected to be 10% of hours paid, and the labour rate is $18 per hour. What is the direct labour cost budget?

Correct answer: B) $150,000

Explanation

Productive hours needed = 12,500 x 0.6 = 7,500. Since idle time is 10% of hours paid, productive hours are 90% of hours paid. Hours paid = 7,500 / 0.9 = 8,333.33. Cost = 8,333.33 x 18 = $150,000. Adding 10% to productive hours (7,500 x 1.1 x 18 = $148,500) is wrong because idle time is a percentage of hours paid, not of productive hours.