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 hour to 0.75 hour. Labor-related costs include pension contributions of $0.50 per hour, workers compensation insurance of $0.20 per hour, employee medical insurance of $0.80 per hour, and employer contributions to Social Security equal to 7 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 $18.00 per hour on April 1, 20x1. Management expects to have 16,000 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 50 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	$	16.00		$	16.00		$	16.00		$	18.00		$	18.00
Estimated unit sales		10,000			12,000			8,000			9,000			9,000
Sales price per unit	$	50.00		$	47.50		$	47.50		$	47.50		$	47.50
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)	$	7.00		$	7.00		$	7.00		$	7.00		$	7.00

March 8.000 Quarter 30,000 30,000 SPIFFY SHADES CORPORATION Budget for Production and Direct Labor For the First Quarter of 20x1 Month January February Sales (units) 10,000 12,000 Add: Ending inventory 16,000 Total needs 26,000 12,000 Less: Beginning inventory 16,000 16,000 Units to be produced 10,000 (4,000) Direct-labor hours per unit 1.00 1.00 Total hours of direct labor time needed 10,000 (4,000) Direct-labor costs: Wages $ 160,000 Pension contributions 5,000 Workers' compensation insurance 2,000 Employee medical insurance 8,000 Employer's social security 11,200 Total direct-labor cost $ 186,200 $ 0 8,000 12,500 (4,500) 0.75 (3,375) 30,000 2,625 $ 0 10 $