Rana Company makes and sells Trophies . Basher, the controller, is responsible for preparing Ranas master budget and has accumulated the following information for 2021:

2021

January

February

March

April

May

Estimated sales in units

10,000

14,000

7,000

8,000

8,000

Selling price

$54.00

$50.50

$50.50

$50.50

$50.50

Direct manufacturing labor-hours per unit

3.0

3.0

2.5

2.5

2.5

Wage per direct manufacturing labor-hour

$12.00

$12.00

$12.00

$13.00

$13.00

In addition to wages, direct manufacturing labor-related costs include pension contributions of $0.70 per hour, workers compensation insurance of $0.40 per hour, employee medical insurance of $0.50 per hour, and Social Security taxes. Assume that as of January 1, 2021, the Social Security tax rates are 7.5% for employers and 7.5% for employees. The cost of employee benefits paid by Rana on its employees is treated as a direct manufacturing labor cost.

Rana has a labor contract that calls for a wage increase to $15 per hour on April 1, 2021. New laborsaving machinery has been installed and will be fully operational by March 1, 2021. Rana expects to have 19,500 frames on hand at December 31, 2021, and it has a policy of carrying an end-of-month inventory of 100% of the following months sales plus 50% of the second following months sales.

Required:

1. Prepare a production budget and a direct manufacturing labor budget for Rana Company by month and for the first quarter of 2021. You may combine both budgets in one schedule. The direct manufacturing labor budget should include labor-hours and show the details for each labor cost category. 15 MARKS

2. What actions has the budget process prompted Ranas management to take? 5 MARKS

3. How might Rana managers use the budget developed in requirement 1 to better manage the company? 5 MARKS