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[The following information applies to the questions displayed below.] Spiffy Shades Corporation manufactures artistic frames for sunglasses. Talia Demarest, controller, is responsible for preparing
[The following information applies to the questions displayed below.] 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 201, Demarest has learned that new automated production equipment will be installed on March 1. This will reduce the direct labor per frame from 1.0 hour to 0.75 hour. Labor-related costs include pension contributions of $0.55 per hour, workers' compensation insurance of $0.25 per hour, employee medical insurance of $1 per hour, and employer contributions to Social Security equal to 4.00 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 $16.00 per hour on April 1, 20x1. Management expects to have 16,200 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 30 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. Direct-labor hours per unit Wage per direct-labor hour January 1.0 February 1.0 March 0.75 Estimated unit sales $ 14.00 12,000 Sales price per unit $ 70.00 $ 14.00 14,000 $ 67.50 $ 14.00 10,000 April 0.75 $ 16.00 11,000 May 0.75 $ 16.00 11,000 $ 67.50 $ 67.50 $ 67.50 Production overhead: Shipping and handling (per unit sold) $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00
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