=+10-23 KK Budgets for production and direct manufacturing labour (CMA, adapted) OBJECTIVE 3 Zhang Manufacturing makes and sells artistic frames for photographs of weddings, graduations and other special events. Bob Anderson, the management accountant, is responsible for preparing Zhang Manufacturing’s master budget and has accumulated the following information for 2015:

2015 January February March April May Estimated sales in units 10 000 12 000 8 000 9 000 9 000 Selling price $54.00 $51.50 $51.50 $51.50 $51.50 Direct manufacturing labour-hours per unit 2.0 2.0 1.5 1.5 1.5 Wage per direct manufacturing labour-hour $10.00 $10.00 $10.00 $11.00 $11.00 In addition to wages, direct manufacturing labour-related costs include pension contributions of $0.50 per hour, worker’s compensation insurance of $0.15 per hour, employee medical insurance of $0.40 per hour and compulsory superannuation contributions. Assume that as of 1 January 2015, the superannuation guarantee obligations are 9% of wages. The cost of employee benefits paid by Zhang Manufacturing on its employees is treated as a direct manufacturing labour cost.

Zhang Manufacturing has a labour contract that calls for a wage increase to $11 per hour on 1 April 2015. New labour-saving machinery has been installed and will be fully operational by 1 March 2015. Zhang Manufacturing expects to have 16000 frames on hand at 31 December 2014, and it has a policy of carrying an end-of-month inventory of 100% of the following month’s sales plus 50% of the second following month’s sales.

Required Prepare a production budget and a direct manufacturing labour budget for Zhang Manufacturing by month and for the first quarter of 2015. Both budgets may be combined in one schedule. The direct manufacturing labour budget should include labour-hours and show the details for each labour cost category.