Question
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
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 3.0 hours to 2.75 hours. Labor-related costs include pension contributions of $1.05 per hour, workers compensation insurance of $0.75 per hour, employee medical insurance of $3 per hour, and employer contributions to Social Security equal to 6.00 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 $19.00 per hour on April 1, 20x1. Management expects to have 22,700 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 30 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 | 3.0 | 3.0 | 2.75 | 2.75 | 2.75 | ||||||||||
| Wage per direct-labor hour | $ | 17.00 | $ | 17.00 | $ | 17.00 | $ | 19.00 | $ | 19.00 | |||||
| Estimated unit sales | 17,000 | 19,000 | 15,000 | 16,000 | 16,000 | ||||||||||
| Sales price per unit | $ | 62.00 | $ | 59.50 | $ | 59.50 | $ | 59.50 | $ | 59.50 | |||||
| Production overhead: | |||||||||||||||
| Shipping and handling (per unit sold) | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | |||||
| Purchasing, material handling, and inspection (per unit produced) | $ | 6.00 | $ | 6.00 | $ | 6.00 | $ | 6.00 | $ | 6.00 | |||||
| Other production overhead (per direct-labor hour) | $ | 9.00 | $ | 9.00 | $ | 9.00 | $ | 9.00 | $ | 9.00 | |||||
Required: 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.)
Budget information includes:
Sales (units)
Ending inventory
Total needs
Beginning inventory
Units to be produced
Direct labor hours per unit
Total hours of direct labor time needed
Direct labor costs:
Wages
Pension contributions
worker's compensation
medical insurance
social security
All of these for the months of January, February, March, and for the entire quarter.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Survey of Accounting
Authors: Carl S Warren
5th Edition
9780538489737, 538749091, 538489731, 978-0538749091
