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 
 1234Year
Planned Production in Units1,3349121,1481,7785,172
× Direct Labor Hours per Unit3.53.53.53.53.5
Budgeted Direct Labor Hours4,6693,1924,0186,22318,102
× 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

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