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
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 $17.00 per hour on April 1, 20x1. Management expects to have 29,500 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 | 3.0 | 3.0 | 2.75 | 2.75 | 2.75 | ||||||||||
| Wage per direct-labor hour | $ | 15.00 | $ | 15.00 | $ | 15.00 | $ | 17.00 | $ | 17.00 | |||||
| Estimated unit sales | 19,000 | 21,000 | 17,000 | 18,000 | 18,000 | ||||||||||
| Sales price per unit | $ | 52.00 | $ | 49.50 | $ | 49.50 | $ | 49.50 | $ | 49.50 | |||||
| Production overhead: | |||||||||||||||
| Shipping and handling (per unit sold) | $ | 4.00 | $ | 4.00 | $ | 4.00 | $ | 4.00 | $ | 4.00 | |||||
| Purchasing, material handling, and inspection (per unit produced) | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | |||||
| Other production overhead (per direct-labor hour) | $ | 9.00 | $ | 9.00 | $ | 9.00 | $ | 9.00 | $ | 9.00 | |||||
| | |||||||||||||||
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Intermediate Accounting IFRS Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
2nd Edition
1118443969, 978-1118443965
