ICAEW BIP · Chapter 7 · Question 3 of 10
A company plans to produce 18,600 units, each needing 0.75 hours of productive labour time. Idle time is expected to be 10% of hours paid. Labour is paid £15 per hour. What is the labour cost budget?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £232,500
Explanation
Productive hours needed = 18,600 x 0.75 = 13,950 hours. Because idle time is 10% of hours paid, productive hours are 90% of hours paid. Hours paid = 13,950 / 0.9 = 15,500. Labour cost = 15,500 x £15 = £232,500. Adding 10% to productive hours (£230,175) understates the cost because the percentage is based on hours paid.
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