Company makes and sells artistic frames for pictures of weddings, graduations, and other special events. Ron

HartHart,

the controller, is responsible for preparing

MahoneyMahoney's

master budget and has accumulated the following information for

20182018:

1.	Prepare a production budget and a direct manufacturing labor cost budget for MahoneyMahoney Company by month and for the first quarter of 20182018. You may combine both budgets in one schedule. The direct manufacturing labor cost budget should include labor-hours and show the details for each labor cost category.
2.	What actions has the budget process prompted MahoneyMahoney's management totake?
3.	How might MahoneyMahoney's managers use the budget developed in requirement 1 to better manage the company?

2018

January

February

March

April

May

Estimated sales in units

10,000

16,000

7,000

8,000

8,000

Selling price

$58.00

$50.50

$50.50

$50.50

$50.50

Direct manufacturing labor-hours per unit

2.5

2.5

2.0

2.0

2.0

Wage per direct manufacturing labor-hour

$10.00

$10.00

$10.00

$14.00

$14.00

Requirement 1. Prepare a production budget and a direct manufacturing labor cost budget for

MahoneyMahoney

Company by month and for the first quarter of

20182018.

You may combine both budgets in one schedule. The direct manufacturing labor cost budget should include labor-hours and show the details for each labor cost category.

Start the schedule by preparing the production budget and calculating the total hours of direct manufacturing labor time needed for the three months in the quarter, then calculate the values for the quarter. Finish by preparing the bottom portion of the schedule for the direct manufacturing labor by month, then quarter. (Enter the direct manufacturing labor-hours per unit to one decimal place, X.X. Do not round interim calculations, and then enter all amounts in the budget [other than the direct manufacturing labor-hours per unit] to the nearest whole number.)

Mahoney Company
Budget for Production and Direct Manufacturing Labor
For the Quarter Ended March 31, 2018
	January	February	March
Budgeted sales (units)
Add target ending finished goods inventory (units)
Total requirements (units)
Deduct beginning finished goods inventory (units)
Units to be produced
Direct manufacturing labor-hours per unit
Total hours of direct manufacturing labor time needed

Quarter

Direct manufacturing labor costs:
Wages
Pension contributions
Workers' compensation insurance
Employee medical insurance
Social Security tax (employer's share)
Total direct manufacturing labor costs

Requirement 2. What actions has the budget process prompted

MahoneyMahoney's

management to take? (Select all that apply.)

MahoneyMahoney's

management would look for ways to

Requirement 3. How might

MahoneyMahoney's

managers use the budget developed in requirement 1 to better manage the company?

MahoneyMahoney's

management should work with employees to

decrease labor productivity.

increase inventory levels.

increase labor productivty.

reduce the social security tax rate.

In addition to wages, direct manufacturing labor-related costs include pension contributions of

$0.500.50

per hour, worker's compensation insurance of

$0.100.10

perhour, employee medical insurance of

$0.300.30

per hour, and Social Security taxes. Assume that as of January 1,

20182018,

the Social Security tax rates are 7.5% for employers and 7.5% for employees. The cost of employee benefits paid by

MahoneyMahoney

on its direct manufacturing employees is treated as a direct manufacturing labor cost.

MahoneyMahoney

has a labor contract that calls for a wage increase to

$ 14$14

per hour on April 1,

20182018.

New labor-saving machinery has been installed and will be fully operational by March 1,

20182018.

MahoneyMahoney

expects to have

19 comma 50019,500

frames on hand at December 31,

20172017,

and it has a policy of carrying an end-of-month inventory of100% of the following month's sales plus 50% of the second following month's sales.