Direct Labor Budget
Direct labor budget shows the total direct labor cost and number of direct labor hours needed for production. It helps the management to plan its labor force requirements. Direct labor budget is a component of master budget. It is prepared after the preparation of production budget because the budgeted production in units figure provided by the production budget serves as starting point in direct labor budget.
Following are the calculations involved in the direct labor budget:
Planned Production in units
× Direct Labor Hours Required per Unit
= Budgeted Direct Labor Hours Required
× Cost per Direct Labor Hours
= Budgeted Direct Labor Cost
Format and Example
Following is an example showing a simple direct labor budget format. The planned production figures are obtained from the production budget of Company A.
| Company A | |||||
| Direct Material Purchases Budget | |||||
| For the Year Ending December 30, 2010 | |||||
| Quarter | |||||
| 1 | 2 | 3 | 4 | Year | |
| Planned Production in Units | 1,334 | 912 | 1,148 | 1,778 | 5,172 |
| × Direct Labor Hours per Unit | 3.5 | 3.5 | 3.5 | 3.5 | 3.5 |
| Budgeted Direct Labor Hours | 4,669 | 3,192 | 4,018 | 6,223 | 18,102 |
| × Cost per Direct Labor Hour | $4 | $5 | $5 | $5 | |
| Budgeted Direct Labor Cost | $18,676 | $15,960 | $20,090 | $31,115 | $85,841 |
by Irfanullah Jan, ACCA and last modified on