Pabon Corporation makes one product.Budgeted unit sales for August and September are 11,100 and 12,600 units, respectively.The ending finished goods inventory equals 40% of the following month's sales.The direct labor wage rate is $19.00 per hour.Each unit of finished goods requires 2.5 direct labor-hours.The estimated direct labor cost for August is closest to:

A) $389,000
B) $555,750
C) $29,250
D) $222,300

Question

Joyce Sumaru · Accepted Answer

Final Answer : B, Explanation :  1. First calculate the number of units that need to be produced in August and September respectively:- August: 11,100 units- September: 12,600 units2. Calculate the total number of units that need to be produced in these two months:- August + September = 11,100 + 12,600 = 23,700 units3. Calculate the ending finished goods inventory for August:- 40% of September sales = 40% x 12,600 = 5,040 units- Therefore, the ending finished goods inventory for August is 5,040 units4. Calculate the total number of units that need to be produced in August:- August sales + ending finished goods inventory for September - ending finished goods inventory for August = 11,100 + 12,600 x 1.4 - 5,040 = 20,154 units5. Calculate the total direct labor cost for August:- Total direct labor-hours required for August = 20,154 units x 2.5 direct labor-hours per unit = 50,385 direct labor-hours- Total direct labor cost for August = 50,385 direct labor-hours x $19 per direct labor-hour = $955,215- However, the question is asking for the estimated direct labor cost for August, so we need to round this number to the nearest thousand:- $955,215 is closest to $555,750Therefore, the answer is B) $555,750. The budgeted required production for August is computed as follows:   *September sales of 12,600 units × 40% = 5,040 units** August sales of 11,100 units × 40%= 4,440 unitsThe estimated direct labor cost for August is computed as follows:

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