Case Summary:

You have recently been hired as an accounting intern by Seattle Sandwich. The company makes and sells 7 types of sandwiches to approximately 40 customers that operate lunch carts in or near downtown Seattle. Your first work assignment is to assist in the development of next years budget. In particular, you are having difficulty deciding how to budget production labor costs. The production manager sets a weekly schedule for hourly workers, adjusting the schedule as needed for changes in sales volumes. In addition, the production manager can send workers home early if sales are lower than expected or if production goes more quickly than usual. In previous budgets, hourly labor was treated as a variable cost. However, a certain number of workers is generally needed, and the manager is reluctant to send workers home early too often for fear of losing good employees. Accordingly, you are wondering whether hourly labor costs should be treated as a fixed cost in next years budget.

Required: Provide your recommendation about how hourly labor costs should be treated in next years budget