CIMA BA2 · Chapter 6 · Question 5 of 13
A company budgets to produce 4,000 units, each needing 2.5 standard hours of productive labour. Idle time is expected to be 20% of the total hours paid. Labour is paid $16 per hour. What is the labour cost budget?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $200,000
Explanation
Productive hours required = 4,000 x 2.5 = 10,000 hours. Because idle time is 20% of hours PAID, productive hours are 80% of hours paid: hours paid = 10,000 / 0.80 = 12,500 hours. Labour cost = 12,500 x $16 = $200,000. Adding 20% to productive hours (12,000 hours) is incorrect because the 20% is a proportion of hours paid, not of hours worked.
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