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 1.0 hour to 0.75 hour. Labor-related costs include pension contributions of $0.80 per hour, workers’ compensation insurance of $0.50 per hour, employee medical insurance of $2 per hour, and employer contributions to Social Security equal to 5.00 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 28,400 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 60 percent of the second following month’s sales. These and other data compiled by Demarest are summarized in the following table. January February March April May Direct-labor hours per unit 1.0 1.0 0.75 0.75 0.75 Wage per direct-labor hour $ 12.00 $ 12.00 $ 12.00 $ 14.00 $ 14.00 Estimated unit sales 17,000 19,000 15,000 16,000 16,000 Sales price per unit $ 64.00 $ 61.50 $ 61.50 $ 61.50 $ 61.50 Production overhead: Shipping and handling (per unit sold) $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 Purchasing, material handling, and inspection (per unit produced) $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 Other production overhead (per direct-labor hour) $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00

Answer 1