P9.37 LO 9.11 (appendix) Production and direct labour budgets: manufacturer Alpha Mann Ltd makes and sells computer carry bags. Bill Blake, the company accountant, is responsible for preparing the company's annual budget. In compiling the budget data for next year, Blake has learned that new automated production equipment will be installed on 1 March. This will reduce the direct labour per unit from 1 hour to 0.75 hour. Labour-related costs include employer superannuation contributions of 9 per cent of employee wages, workers' compensation insurance of $0.20 per hour, and payroll tax equal to 7 per cent of employee wages. These on-costs are treated as an additional direct labour cost. The accountant estimates that a wage increase for production workers of $4.00 per hour will take place on 1 April. Management expects to have 16000 bags on hand at the beginning of the budget year, and has a policy of carrying an end-of-month inventory of 100 per cent of the following month's sales plus 50 per cent of the second following month's sales. This and other data compiled by Blake are summarised in the following table: January February March April May Direct labour hours per unit 1.0 1.0 0.75 0.75 0.75 Wage per direct labour hour $32.00 $32.00 $32.00 $36.00 $36.00 Estimated unit sales 20000 24000 16000 18000 18000 Sales price per unit $50.00 $47.50 $47.50 $47.50 $47.50 Manufacturing overhead: Shipping and handling (per unit sold) $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 Purchasing and material handling $ 4.50 $ 4.50 $ 4.50 $ 4.50 $ 4.50 (per unit produced) Other (per direct labour hour) $10.50 $10.50 $10.50 $10.50 $10.50 Required 1. Prepare a production budget and a direct labour budget for Alpha Mann Ltd, by month and for the first quarter of the next budget year. Both budgets may be combined into a single schedule. The direct labour budget should include direct labour hours and show the detail for each direct labour cost category. 2. For each item used in the firm's production budget and direct labour budget, identify the other components of the annual budget that would also use these data. 3. Prepare a manufacturing overhead budget for each month and for the first quarter.