Question

Required information (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 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 $14.00 per hour on April 1, 20x1. Management expects to have 17,500 frames on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following month's sales plus 50 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. January 3.0 $ 12.00 11,000 $ 52.00 February 3.0 $ 12.00 13,000 $ 49.50 March 2.75 $12.00 9,000 $49.50 April 2.75 $ 14.00 10,000 $ 49.50 May 2.75 $ 14.00 10,000 $ 49.50 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) $ 2.00 $ 2.00 $ 2.00 $ $ 3.00 5.00 $ $ 3.00 5.00 $ 3.00 $ 5.00 $ $ 3.00 5.00 $ $ 3.00 5.00 Required:

Answer 1

SPIFFY SHADES CORPORATION
Budget for production and Direct labor
For the first Quarter of 20x1
	Month
	January	February	March	Quarter
Sales (units)	11000	13000	9000	33000
(+) Desired ending inventory	17500 [ (13000*100%) + (9000*50%) ]	14000 [ (9000*100%) + ( 10000*50%) ]	20000 [ (10000*100%) + ( 10000*100%) ]	20000
Total needs	28500	27000	29000	53000
(-) Beginning inventory	17500	17500	14000	17500
Units to be produced	11000	9500	15000	35500
Direct-labor hours per unit	3	3	2.75
Total hours of direct labor time needed	33000	28500	41250	102750
Direct-labor costs :
Wages ( Total hours of direct labor time needed * 12.00 )	396000	342000	495000	1233000
Pension contributions ( Total hours of direct labor time needed * 1.05 )	34650	29925	43312.5	107888
Workers' compensation insurance ( Total hours of direct labor time needed * 0.75 )	24750	21375	30937.5	77063
Employee medical insurance ( Total hours of direct labor time needed * 3 )	99000	85500	123750	308250
Employer's social security ( Wages * 6% )	23760	20520	29700	73980
Total direct labor cost	578160	499320	722700	1800180