Butler Corporation manufactures stereo headphones in Princeton, New Jersey. Brent Dean, director of cost management, is responsible for preparing the company’s master budget. In compiling the budget data for 20x1, Dean has learned that new automated production equipment will be installed on March 1.

This will reduce the direct labor per set of headphones from | hour to .75 hours.

Labor-related costs include pension contributions of $.50 per hour, workers’ compensation insurance of $.20 per hour, employee medical insurance of $.80 per hour, and employer contributions to Social Security equal to 7 percent of direct-labor wages. The cost of employee benefits paid by the company on its employees is treated as a direct-labor cost. The company has a labor contract that calls for a wage increase to $18.00 per hour on April 1, 20x1. Management expects to have 16,000 headphone sets on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following month’s sales plus 50 percent of the second following month’s sales.

These and other data compiled by Dean are summarized in the following table January February March April May Sales price per UNit.......ccceee si ee ine e $51.00 $49.00 $49.00 $49.00 $49.00 ESiMeatechUminsaleSe wa nncus cit arate wc 10,000 12,000 8,000 9,000 9,000 Direct-labor hours per unit.........5 BS eels 1.0 ee) aS st) afS)
Wage per direct-labor NOUF .......ccccceeeeeereen $16.00 $16.00 $16.00 $18.00 $18.00 Manufacturing overhead Shipping and handling (per unit sold) ........ $2.50 $2.50 $2.50 $2.50 $2.50 Purchasing, material handling, and inspection (per unit produced) ......ccccce. $3.00 $3.00 $3.00 $3.00 $3.00 Other manufacturing overhead (per direct-labor NOUL)......ccccccccseceeeeeereeceeeens $7.00 $7.00 $7.00 $7.00 $7.00 Required

a. Prepare a production budget and a direct-labor budget for Butler Corporation by month and for the first quarter of 20x1. Both budgets can be combined in one schedule. The direct-labor budget should include direct-labor hours and show the detail for each direct-labor cost category.

b. For each item used in the firm’s production budget and direct-labor budget, identify the other components of the master budget that also would use these data.

c. Prepare a manufacturing overhead budget for each month and for the first quarter.