Learning Materials For Accounting, Management , Finance And Economics.

Thursday, April 5, 2012

Concept Of Direct Labor Cost Budget And Factory Overhead Budget And Their Preparation

Direct Labor Cost Budget

Labor cost budget is calculated on the basis of labor hours required for budgeted production volume and labor hour relate for each type of labor force. Given expected/budgeted production, The Engineering and Personnel Department can work together to determine the necessary labor requirement for the production/factory department. Labor requirements are stated in total number of workers, specific number of skilled, and unskilled workers and production hours needed for given production volume. Labor costs computation includes monetary costs and fringe benefits given to labor force.

A general format for labor cost budget is given below:

Direct Labor Cost Budget
....................................................................Product A...........Product B........Total
Budgeted production units.......................XXX.......................XXX
Direct labor hour per unit of output........XXX.......................XXX
Budgeted total labor hours:.....................XXX.......................XXX
Rate per DLH...............................................X $.........................X$
Budgeted Direct labor costs.......................$XXX.....................$XXX...........$XXX

Factory Overhead Budget
Factory overhead is also known as manufacturing overhead. It is the aggregate of indirect expenses of factory department. Factory overhead includes both variable and fixed factory overhead and include following expenses:
* Factory rents and rates, lighting and heating
* Factory power, fuel and insurance
* Factory salaries, indirect wages and pension
* Factory stationary and printing
* Canteen, medical, educational and entertainment facilities to the factory workers.
* Repairs and maintenance of plant and machinery and factory building
* Depreciation, insurance of the factory building, plant and machinery, tools and equipment.