Salem Company manufactures and trades frames weddings, and other special events. Abdulla, the controller, is responsible for preparing Salem s master budget and has accumulated the following information for 2018:

2018

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

2.0

2.0

1.5

1.5

1.5

Wage per direct manufacturing labor-hour

$13.00

$13.00

$13.00

$14.00

$14.00

In addition to wages, direct manufacturing labor-related costs include pension contributions of $0.60 per hour, workers compensation insurance of $0.30 per hour, employee medical insurance of $0.40 per hour, and Social Security taxes. Assume that as of January 1, 2018, the Social Security tax rates are 7.5% for employers and 7.5% for employees. The cost of employee benefits paid by Salem on its employees is treated as a direct manufacturing labor cost.

Salem has a labor contract that calls for a wage increase to $18 per hour on April 1, 2018. New laborsaving machinery has been installed and will be fully operational by March 1, 2018. Salem expects to have 21,500 frames on hand at December 31, 2018, 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.