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 3.0 hours to 2.75 hours. Labor-related costs include pension contributions of $1.55 per hour, workers' compensation insurance of $1.25 per hour, employee medical insurance of $5 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 $21.00 per hour on April 1, 20x1. Management expects to have 19,000 frames on hand at December 31, 20x0, and has a policy of carrying an end-of- month inventory of 100 percent of the following month's sales plus 40 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. January 3.0 $ 19.00 13,000 $ 62.00 February 3.0 $ 19.00 15,000 $ 59.50 March 2.75 $ 19.00 11,000 $ 59.50 April 2.75 $ 21.00 12,000 $ 59.50 May 2.75 $ 21.00 12,000 $ 59.50 Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: Shipping and handling (per unit sold) Purchasing, material handling, and inspection (per unit produced) Other production overhead (per direct- labor hour) $ $ $ 1.00 2.00 7.00 $ 1.00 $ 2.00 $ 7.00 $ 1.00 $ 2.00 $ 7.00 $ 1.00 $ 2.00 $ 7.00 $ 1.00 $ 2.00 $ 7.00 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.) March 11,000 16,800 27,800 Quarter 39,000 16,800 55,800 SPIFFY SHADES CORPORATION Budget for Production and Direct Labor For the First Quarter of 20x1 Month January February Sales (units) 13,000 15,000 Add: Ending inventory 19,400 15,800 Total needs 32,400 30.800 Less: Beginning inventory Units to be produced 32,400 3 0,800 Direct-labor hours per unit 3.00 3.00 Total hours of direct labor time needed 97,200 92,400 Direct-labor costs: Wages Pension contributions Workers' compensation insurance Employee medical insurance Employer's social security Total direct-labor cost $ 0 $ 0 55,800 27,800 2.75 76,450 266,050 $ 0 $ 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 13,000 February $ 15,000 March 11,000 Quarter 39,000 Shipping and handling $ $ $ Purchasing, material handling, and inspection Other overhead Total production overhead $ 13,000 $ 15,000 $ 11,000 $ 39,000
