Estimates for direct labor and labor-related costs

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Reference no: EM13784928

Pan-Am Manufacturing Company prepares cost estimates for projects on which it will bid. In order to anticipate the labor cost to be included in a request to bid on a contract for 1,200,000 units that will be delivered to the customer at the rate of 100,000 units per month, the company has compiled the following data related to labor:

a. The first 100,000 units will require 5 hours per unit.

b. The second 100,000 units will require less labor due to the skills learned on the first 100,000 units finished. It is expected that labor time will be reduced by 10% if an incentive bonus of one-half of the labor savings is paid to the employees.

c. For the remaining 1,000,000 units, it is expected that the labor time will be reduced 20% from the original estimate (the first 100,000 units) if the same incentive bonus (1/2 of the savings) is paid to the employees.

d. Overtime premiums are to be excluded when savings are computed. The contract will require 2,250 employees at a base rate of $20.00 per hour, with time-and-a-half for overtime. The plant operates on a 5-day, 40-hour-per-week basis. Employees are paid for a two-week vacation in August and for eight holidays. The scheduled production for the 50-week work year shows:

January-June: 26 weeks with 4 holidays

July-December: 24 weeks with 4 holidays

Required:

Prepare cost estimates for direct labor and labor-related costs for the contract, showing the following:

1. Wages paid at the regular rate.

2. Overtime premium payments. (Don't forget holidays in computing regular hours available.)

3. Incentive bonus payments.

4. Vacation and holiday pay.

5. Employer's payroll taxes (13% of total wages, assuming that no employee has exceeded the wage bases for FICA and the unemployment insurance taxes).

Reference no: EM13784928

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