Marine Enterprises has developed the following unit costs for the production of one of its products,based on a normal activity of 10,000 units per month:
$$\begin{array} { | l | l | }
\hline \text { Direct materials } & 2.0 \text { pounds } @ \$ 12 = \$ 24.00 \
\hline \text { Direct labor } & 1.5 \text { hours } @ \$ 15 = \$ 22.50 \
\hline \text { Variable overhead } & 120 \% \text { of direct labor cost } \
\hline \text { Fixed owerhead } & 140 \% \text { of direct labor cost } \
\hline
\end{array}$$
What is the total amount of direct labor budgeted for a month in which production is expected to be 11,000 units?
A) $165,000.
B) $225,000.
C) $247,500.
D) $297,000.

Question

Marine Enterprises has developed the following unit costs for the production of one of its products,based on a normal activity of 10,000 units per month: 
$$\begin{array} { | l | l | } 
\hline \text { Direct materials } & 2.0 \text { pounds } @ \$ 12 = \$ 24.00 \
\hline \text { Direct labor } & 1.5 \text { hours } @ \$ 15 = \$ 22.50 \
\hline \text { Variable overhead } & 120 \% \text { of direct labor cost } \
\hline \text { Fixed owerhead } & 140 \% \text { of direct labor cost } \
\hline
\end{array}$$
What is the total amount of direct labor budgeted for a month in which production is expected to be 11,000 units?
A) $165,000.
B) $225,000.
C) $247,500.
D) $297,000.

Quizplus · Accepted Answer

The direct labor cost per unit is $15.75 ($157,500 ÷ 10,000 units), so for 11,000 units, the direct labor cost would be:
$15.75 × 11,000 = $173,250
However, the question asks for the total amount of direct labor budgeted, which means we need to use the budgeted direct labor cost per unit of $22.50 ($225,000 ÷ 10,000 units) instead of the actual cost per unit of $15.75. 
So, the total amount of direct labor budgeted for 11,000 units would be:
$22.50 × 11,000 = $247,500. 
Therefore, the correct answer is C.

Marine Enterprises Has Developed the Following Unit Costs for the Production