What is a direct labor budget?
Daniel Santos
Updated on January 04, 2026
The direct labor budget is used to calculate the number of labor hours that will be needed to produce the units itemized in the production budget. Then multiply the total number of direct labor hours by the fully burdened direct labor cost per hour to arrive at the total cost of direct labor.
How do you find the direct labor budget?
To prepare a direct labor budget, multiply the number of units to be produced (from the production budget) by the direct labor time needed to make each unit. Then multiply that result by the average direct labor cost per hour.
When calculating the direct labor budget the starting point should be?
Question: 1. The starting point for the Direct Labor Budget is: Multiple Choice the materials to be purchased from the direct materials budget. the units to be sold from the sales budget. the ending inventory from the budgeted balance sheet.
What is the budgeted direct labor cost rate per hour?
Budgeted professional labor-hour direct cost rate = Budgeted direct labor compensation per professional Budgeted direct labor-hours per professional = $97,500 1,500 hours = $65 per professional labor-hour Note that the budgeted professional labor-hour direct-cost rate can also be calculated by dividing total budgeted …
How do you calculate labor cost?
Calculate an employee’s labor cost per hour by adding their gross wages to the total cost of related expenses (including annual payroll taxes and annual overhead), then dividing by the number of hours the employee works each year. This will help determine how much an employee costs their employer per hour.
How do you calculate material budget?
Once we have accounted for these variables, we have everything we need to apply the formula:
- Budgeted direct material purchases in units =
- Budgeted beginning direct material in units +
- Direct material in units necessary for production –
- Budgeted ending direct material in units.
What is the starting point for preparing the master budget?
Question: The sales budget is the starting point for the master budget, as shown in Figure 9.1 “Master Budget Schedules”.
How long is a budget period?
A budget period is a portion of time, usually equal to a calendar month. There are fifteen periods that you can use to enter budget amounts.
Who prepares master budget?
The budget committee usually develops the master budget for each year, guided by the budget director, who is usually the controller of the company. They usually plan the operating budgets first since information from the operating budgets is needed for the financial budgets.
The direct labor budget is used to calculate the number of labor hours that will be needed to produce the units itemized in the production budget. The direct labor budget is useful for anticipating the number of employees who will be needed to staff the manufacturing area throughout the budget period.
What is the budgeted direct labor hours required per unit?
Multiply the number of hours per unit times the average cost per hour. In the example, . 25 hours times $12 per hour equals $3 per unit. Your direct labor cost would be $3 for each unit you produce.
What is master budget example?
Definition & Examples of a Master Budget A master budget includes all of the lower-level budgets within an organization, as well as cash flow forecasts, budgeted financial statements, and a financial plan. It gives a firm a broad overview of its finances and is often used as a central planning tool.
What is direct labor example?
Direct labor costs include the labor costs of all employees actually working on materials to convert them into finished goods. The wages paid to a construction worker, a pizza delivery driver, and an assembler in an electronics company are examples of direct labor.
How do you prepare a purchases budget?
To calculate Purchases in dollars, we need to multiply the units by the unit price of $5. So, Purchases in dollars = 84,800 * $5 = $424,000. that’s how to prepare a Purchases Budget in units and dollars.
How do you calculate budget hours?
The total budgeted direct labour hours for period 1 in the cost centre, based on the standard hour data above, is:
- Product A – 1,240 hours (12,400 units ÷ 10 units per hour)
- Product B – 400 hours (10,000 units ÷ 25 units per hour)
- Product C – 925 hours (18,500 units ÷ 20 units per hour)
When do you prepare a direct labor 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:
How is the cost of direct labor calculated?
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.
When do you add direct labor to a project?
If the work performed cannot be connected to a specific employee, then the wages paid are considered indirect. When tracking the total cost incurred for a specific project, the direct labor cost must be added since it could constitute a significant portion of the project.
How is the production budget determined from sales?
When the production budget is determined from the sales, management prepares the direct materials budget to determine when and how much material needs to be ordered. Orders for materials take place throughout the quarter, and payments for the purchases are made at different intervals from the orders.
