A Ltd. manufactures a single product P with a single grade of labor. The sales budget and finished goods stock budget for the 1st Quarter ending on 30th June 2008 are as follows.
Sales: 1,400 units
Opening finished units: 100 units
Closing finished units: 140 units
The goods are imported only when production work is complete and it is budgeted that 10% of finished work will be scrapped. The standard direct labor content of the product P is 3 hours. The budgeted productivity ratio for direct labor is 80% only. The company employs 36 direct operatives who are expected to average 144 working hours each in the 1st quarter. You are required to prepare,
I] Production Budget II] Direct Labor Budget and III] Comment on the problem that your direct labor budget reveals and suggest how this problem might be overcome.