Required information

Problem 9-31 Production and Direct-Labor Budgets; Activity-Based Overhead Budget (LO 9-3, 9-4, 9-5, 9-6)

[The following information applies to the questions displayed below.]

Spiffy Shades Corporation manufactures artistic frames for sunglasses. Talia Demarest, controller, is responsible for preparing the companys master budget. In compiling the budget data for 20x1, Demarest has learned that new automated production equipment will be installed on March 1. This will reduce the direct labor per frame from 1.0 hour to 0.75 hour.

Labor-related costs include pension contributions of $1.30 per hour, workers compensation insurance of $1.00 per hour, employee medical insurance of $4 per hour, and employer contributions to Social Security equal to 7.00 percent of direct-labor wages. The cost of employee benefits paid by the company on its employees is treated as a direct-labor cost. Spiffy Shades Corporation has a labor contract that calls for a wage increase to $15.00 per hour on April 1, 20x1. Management expects to have 16,200 frames on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following months sales plus 40 percent of the second following months sales.

These and other data compiled by Demarest are summarized in the following table.

	January			February			March			April			May
Direct-labor hours per unit		1.0			1.0			0.75			0.75			0.75
Wage per direct-labor hour	$	13.00		$	13.00		$	13.00		$	15.00		$	15.00
Estimated unit sales		11,000			13,000			9,000			10,000			10,000
Sales price per unit	$	64.00		$	61.50		$	61.50		$	61.50		$	61.50
Production overhead:
Shipping and handling (per unit sold)	$	2.00		$	2.00		$	2.00		$	2.00		$	2.00
Purchasing, material handling, and inspection (per unit produced)	$	3.00		$	3.00		$	3.00		$	3.00		$	3.00
Other production overhead (per direct-labor hour)	$	6.00		$	6.00		$	6.00		$	6.00		$	6.00

1. Prepare a production budget and a direct-labor budget for Spiffy Shades Corporation by month and for the first quarter of 20x1. (Round "Direct-labor hours per unit" to 2 decimal places.)

SPIFFY SHADES CORPORATION
Budget for Production and Direct Labor
For the First Quarter of 20x1
	Month
	January	February	March	Quarter
Sales (units)	11,000	13,000	9,000	33,000
Add: Ending inventory
Total needs	11,000	13,000	9,000	33,000
Units to be produced
Direct-labor hours per unit
Total hours of direct labor time needed	0	0	0	0
Direct-labor costs:
Wages
Pension contributions
Workers' compensation insurance
Employee medical insurance
Employer's social security
Total direct-labor cost	$0	$0	$0	$0

2. For each item used in the firms production budget and direct-labor budget, select the other components of the master budget (except for financial statement budgets) that also, directly or indirectly, would use these data. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

1. Sales data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Sales budgetunanswered
• Cash disbursements budgetunanswered

2. Production data:

• Selling and administrative expense budgetunanswered
• Direct-material budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Production-overhead budgetunanswered
• Cash budgetunanswered
• Cash disbursements budgetunanswered
• Sales budgetunanswered

3. Direct-labor-hour data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Sales budgetunanswered
• Cash disbursements budgetunanswered

4. Direct-labor cost data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Sales budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Cash disbursements budget

3. Prepare a production overhead budget for each month and for the first quarter.

SPIFFY SHADES CORPORATION
Production Overhead Budget
For the First Quarter of 20x1
	Month
	January	February	March	Quarter
Shipping and handling
Purchasing, material handling, and inspection
Other overhead
Total production overhead	$0	$0	$0	$0