Shady Shades, Inc., manufactures artistic frames for sunglasses. Talla Demarest,

Question

Shady Shades, Inc., 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 wlll be Installed on March 1. This will reduce the direct labor per frame from 3.0 hour to 2.75 hours. Labor-related costs Include pension contributions of $1.30 per hour, workers' compensation insurance of $1.00 per hour, employee medical Insurance of $4 per hour, and employer contributions to Social 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. Shady Shades, Inc., has a labor contract that calls for a wage Increase to $22.00 per hour on Aprll 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 30 percent of the second following month's sales. These and other data complled by Demarest are summarized in the following table May February 3.0 20.00 5,000 $ 61.50 March 2.75 $20.00 11,000 $61.50 Aprll Direct-labor hours per unlt Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead January 3.0 $20.00 13,000 $64.00 2.75 2.75 $22.00 12,000 $61.50 S 22.00 2,000 $ 61.50 Shipping and handling (per unit sold) Purchasing, material handling. and inspection (per unit produced) $5.00 $6.00 $9.00 $ 5.00 $ 6.00 $ 9.00 $5.00 $6.00 $9.00 $5.00 $ 6.00 $9.00 $ 5.00 $ 6.00 9.00 Other production overhead (per direct-labor hour) Required: 1. Prepare a production budget and a direct-labor budget for Shady Shades, Inc., by month and in total for the first quarter of 20x1 SHADY SHADES, INC Budget for Production and Direct Labor For the First Quarter of 20x1 Month January Februa 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' compensation insurance Employee medical insurance Employer's social security Total direct-labor cost

Explanation / Answer

Solution:-

SHADY SHADES, INC. Budget for Production and Direct Labour For the First Quarter of 20X1 Particulars January February March Quarter Sales (in Units) 13000 15000 11000 39000 Less:- Opening Stock 17500 18300 14600 14600 Add:- Closing Stock (100% of Following Month Sale + 30% of Next of the Following Month) 18300 14600 15600 15600 Units to be Produced 13800 11300 12000 37100 Direct Labour Per Unit 3 3 2.75 Total Direct Labour Time Needed 41400 33900 33000 108300 Direct Labour Costs:- Wages ($ 20 Per Hour) 828000 678000 660000 2166000 Pension Constributions ($1.30 p/h 53820 44070 42900 140790 Workers' Compensation Insurance ($ 1 p/h) 41400 33900 33000 108300 Employee Medical Insurance ($ 4 p/h) 165600 135600 132000 433200 Employer's Social Security (5% of Wages) 41400 33900 33000 108300 Total Direct Labour Costs 1130220 925470 900900 2956590

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