0 You skipped this question in the previous attempt Check my wor Spiffy Shades C

Question

0 You skipped this question in the previous attempt Check my wor 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 $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 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 $16.00 per hour on April 1, 20x1. Management expects to have 16,200 frames on hand at December 31, 20xO, 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. ary February MarchApril 2.75 3.0 2.75 Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales sales price per unit Production overhead: 2.75 14.00 14.00 $14.00 16.0016.00 10,000 68.0065.5 $65.50 $ 65.50 65.50 3.0 11,000 13,00 9,000 10,000 Shipping and handling per unit sold)5.00 Purchasing, material handling, and 5.00 5.00 5.00 5.00 inspection (per unit produced) Other production overhead (per direct- $ 6.006.00 $ 6.00 6.00 6.0 $6.00 6.00 6.00 6.00 $6.00 labor hour) 2

Explanation / Answer

Spiffy Shades Corporation Budget for production and Direct labour For the First Quarter of 20x1 Month January February March Quarter Sales (units) 11000 13000 9000 33000 Add: Ending Inventory 16600 13000 14000 14000 Total needs 27600 26000 23000 47000 Less: Beginning Inventory 16200 16600 13000 16200 Units to be produced 11400 9400 10000 30800 Direct Labour hour per unit 3 3 2.75 Total hours of direct labour time needed 34200 28200 27500 89900 Direct Labour Cost: Wages ($14 per hour) $478,800 $394,800 $385,000 $1,258,600 Pension contribution ($0.55 per hour) $18,810 $15,510 $15,125 $49,445 Workers compensation insurance ($0.25 per hour) $8,550 $7,050 $6,875 $22,475 Employee medical insurance ($1 per hour) $34,200 $28,200 $27,500 $89,900 Employer's social security $28,728 $23,688 $23,100 $75,516 Total direct labour cost $569,088 $469,248 $457,600 $1,495,936 Ending Inventory for January = 13000 + (9000 x 40%) = 16600 Ending Inventory for Fenruary = 9000 + (10000 x 40%) = 13000 Ending Inventory for March = 10000 + (10000 x 40%) = 14000 Employer's social security January = $478800 x 6% = $28728 February = $394800 x 6% = $23688 March = $385000 x 6% = $23100 3. Production overhead budget for each month and for the first quarter Spiffy Shades Corporation Production Overhead Budget For the First Quarter of 20x1 Month January February March Quarter Shipping and handling $55,000 $65,000 $45,000 $165,000 Purchasing, material handling and inspection $68,400 $56,400 $60,000 $184,800 Other overhead $205,200 $169,200 $165,000 $539,400 Total production overhead $328,600 $290,600 $270,000 $889,200 Purchasing, material handling and inspection = $6 per unit produced January = 11400 x $6 = $68400 February = 9400 x $6 = $56400 March = 10000 x $6 = $60000 Other Overhead = $6 per direct labour hour January = 34200 x $6 = $205200 February = 28200 x $6 = $169200 March = 27500 x $6 = $165000

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