Required information (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 company's 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 2.0 hours to 1.75 hours. Labor-related costs include pension contributions of $0.80 per hour, workers' compensation insurance of $0.50 per hour, employee medical insurance of $2 per hour, and employer contributions to Social Security equal to 4.00 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 26,800 frames on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following month's sales plus 60 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. May February 2.0 March 1.75 April 1.75 $ 15.00 18,000 $ 63.50 $63.50 14,000 $ 63.50 $25,000 15,000 $ 63.50 15,000 $ 63.50 January Direct-labor hours per unit 2.0 Wage per direct-labor hour Estimated unit sales 16,000 Sales price per unit $ 66.00 Production overhead: Shipping and handling (per unit sold) $ 4.00 Purchasing, material handling, and inspection (per unit produced) $ 5.00 Other production overhead (per direct- $ 4.00 labor hour) $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ $ 5.00 4.00 $ $ 5.00 4.00 $ $ 5.00 4.00 $ $ 5.00 4.00 Quarter 48,000 24,000 72,000 SPIFFY SHADES CORPORATION Budget for Production and Direct Labor For the First Quarter of 20x1 Month January February March Sales (units) 16,000 | 18,000 14,000 Add: Ending inventory 26,400 23,000 24,000 Total needs 42,400 41,000 38,000 Less: Beginning inventory 26,400 23,000 Units to be produced 42,400 14,600 15,000 Direct-labor hours per unit 2.00 2.00 1.75 Total hours of direct labor time 84,800 29,200 26,250 needed Direct-labor costs: Wages $ 379,600 $ 341,250 Pension contributions 23,360 21,000 Workers' compensation insurance 14,600 13,125 Employee medical insurance 58,400 52,500 Employer's social security 15,184 13,650 Total direct-labor cost 0 $ 491,144 $ 441,525 72,000 140,250 $ SPIFFY SHADES CORPORATION Production Overhead Budget For the First Quarter of 20x1 Month January February March Quarter Shipping and handling Other overhead Total production overhead $ 0 $ 0 $ 0 $ 0
