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Problem 1: Zinn Corporation recently agreed to a union contract provision that guarantees a minimum wage of $1,705 per month to each direct labour employee equivalent to 155 hours of work each month. Currently, 155 employees are covered by this provision. All direct labour employees are paid $11 per hour. Thus, until an employee works 155 hours, the remuneration is a fixed $1,705 per employee each month. Rusty Zinn, the assistant to the accountant was given the task of budgeting for the direct labour cost. Because of the contract provision, Rusty decided that the $264,275 (= 155 × $1,705 per month) should be treated as a fixed monthly cost. Rusty was instructed to calculate each month's budget using the following formula: $264,275 + $6 per direct labour-hour.
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