Required Informatlon IThe following information applles to the questions display

ID: 2552327 • Letter: R

Question

Required Informatlon IThe following information applles to the questions displayed belowj Splffy Shades Corporation manufactures artistic frames for sunglasses. Talla 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 penslon 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 Soclal Security equal to 5.00 percent of direct labor wages. The cost of employee benefits pald 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 Aprll 1, 20x1. Management expects to have 24,000 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 complled by Demarest are summarized In the following table Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead 0.75 8.75 19.80 $ 19.88 19.80 21.88 17,888 60.80 57.58$57.58 $ 57.58 0.75 21.80 17,888 1.8 18,88e 28,888 16,88e 57.5 Shipping and handling (per unit sold) Purchasing, material handling, and inspection $2.80 2.8 $2.80 $2.88 2.8 (per unit produced) $3.80 3.8 $3.8 $ 3.88 3. Other production overhead (per direct-labor $8.808.88$8.80 $ 8.88 8.8 hour) Required 1. Prepare a production budget and a direct-labor budget for Splffy Shades Corporation by month and for the first quarter of 20x1. Round "Direct-labor hours per unlt" to 2 declmal places.) SPIFFY SHADES CORPORATION Budget for Production and Direct Labor For the First Quarter of 20x1 Month January February March Quarter Sales (units) Total needs Units to be produced Direct-labor hours per unit Total hours of direct labor time needed Direct-labor costs Wages Pension contributions Workers' Employee medical insurance Employer's social security compensation insurance Total direct-labor cost

Explanation / Answer

Solution

Spiffy Shades Corporation

Production and Direct-labor budget

For the First Quarter of 20x1

Month

Particulars

January

February

March

Quarter

Sales (units)

18,000

20,000

16,000

Less: Opening finished Inventory

(24,000)

(24,800)

(21,100)

Add: Ending finished Inventory

24,800

21,100

22,100

Units to be produced (A)

18,800

16,300

17,000

Direct-Labor hours per unit (B)

1.0

0.75

Total hours of Direct-Labor time needed (C=A X B)

18,800

16,300

12,750

Direct labor cost:

Wages ($ 19 per hour for January , February and March)

357,200

309,700

242,250

Pension Contribution (Given:$ 0.80 per hour )

15,040

13,040

10,200

Workers’ Compensation insurance (Given:$ 0.50 per hour )

9,400

8,150

6,375

Employee medical insurance (Given:$ 2 per hour )

37,600

32,600

25,500

Employer’s contribution to social security (5% of direct labor wages)

17,860

15,485

12,113

Total Direct-Labor Cost

437,100

378,975

296,438

Total Direct-Labor Cost for the first Quarter ($437,100+ 378,975+ 296,438)

1,112,513

*Given information regarding ending inventory

=Ending inventory will be 100 % of following month sales + 30 % of second following month sales

January Ending inventory = 100 % of February sales + 30 % of March sales

= 100 % of 20,000 + 30% of 16,000

= 20,000 + 4,800

= 24,800 units

February Ending inventory = 100 % of March sales + 30 % of April sales

= 100 % of 16,000 + 30% of 17,000

= 16,000 + 5,100

= 21,100 units

March Ending inventory = 100 % of April sales + 30 % of May sales

= 100 % of 17,000 + 30% of 17,000

= 17,000 + 5,100

= 22,100 units

Note: Ending inventory of a month will be opening inventory of next month.