The following information applies to the questions displayed below. Spiffy Shade

Question

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 5.0 hours to 4.75 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 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 $21.00 per hour on April 1, 20x1. Management expects to have 20,400 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 40 percent of the second following month's sales These and other data compiled by Demarest are summarized in the following table April 4.75 January February March 4.75 May Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: 4.75 19.00 19.00 19.00 21.00 21.00 13,000 $ 62.00 59.50 59.50 59.50 59.50 5.0 14,000 16,000 12,000 13,000 $ 3.00 $ 3.00 3.00 $ 4.00 4.00 4.00 $ 6.00 6.00 6.00 Shipping and handling (per unit sold) Purchasing, material handling, and 3.00 3.00 4.00 4.00 6.00 6.00 inspection (per unit produced) Other production overhead (per direct-labor hour)

Explanation / Answer

SPIFFY SHADES CORPORATION Budget for production and Direct Labor For the first quarterof 20X1 Month January February March Quarter Sales(units) 14000 16000 12000 42000 Ending Inventory 20800 17200 18200 18200 Total needs 34800 33200 30200 60200 Beginning Inventory 20400 20800 17200 20400 Units to be produced 14400 12400 13000 39800 Direct-labor hours per unit 5 5 4.75 Total Hours of direct labor time needed 72000 62000 61750 195750 Direct -Labor costs Wages 1368000 1178000 1173250 3719250 Pension contributions 111600 96100 95712.5 303412.5 Worker's compensation insurance 90000 77500 77187.5 244687.5 Employee medical insurance 360000 310000 308750 978750 Employer's social security 82080 70680 70395 223155 Total direct labor costs 2011680 1732280 1725295 5469255 SPIFFY SHADES CORPORATION Production Overhead Budget For the first quarterof 20X1 Month January February March Quarter Shipping & handling 42000 48000 36000 126000 Purchasing, material handling and inspection 57600 49600 52000 159200 Other overhead 432000 372000 370500 1174500 Total production overhead 531600 469600 458500 1459700

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