Managerial Accounting For Dummies
Book image
Explore Book Buy On Amazon

In order to convert direct materials into finished goods, you need direct labor. The direct labor budget tells you how many direct labor hours of work you’ll need, indicating whether you have enough workers or need to hire more.

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.

In the Forever Tuna example, the company’s production budget indicates the number of units to be produced.


Assume making a single case of Forever Tuna takes half an hour of direct labor. The company pays, on average, $12 per direct labor hour. The direct labor budget multiplies the number of units produced each quarter by the direct labor time per unit, by the direct labor cost per hour.


The direct labor budget indicates that the company can expect to pay a total of $134,100 for direct labor next year.

About This Article

This article is from the book:

About the book author:

Mark P. Holtzman, PhD, CPA, is Chair of the Department of Accounting and Taxation at Seton Hall University. He has taught accounting at the college level for 17 years and runs the Accountinator website at, which gives practical accounting advice to entrepreneurs.

This article can be found in the category: