Required information Problem 9-31 Production and Direct-Labor Budgets; Activity-
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Required information Problem 9-31 Production and Direct-Labor Budgets; Activity-Based Overhead Budget (LO 9-3, 9-4, 9-5, 9- 6) [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 $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 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 $15.00 per hour on April 1, 20x1. Management expects to have 19,000 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 40 percent of the second following month's sales These and other data compiled by Demarest are summarized in the following table JanuaryFebruary April May Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: March 0.75 13.00 13.00 13.00 11,000 $ 60.00 57.50 57.50 0.75 0.75 15.00 15.00 12,000 57.50 57.50 13,000 15,000 12,000 Purchasing, material handling, and inspection (per unit produced) Other production overhead (per direct- Shipping and handling (per unit sold) $4.00 4.00 4.00 $ 5.00 5.00 $5.00 $ 4.00 4.00 4.00 4.00 $4.00 5.00 $ 5.00 4.00 4.00 labor hour) Problem 9-31 Part 1Explanation / Answer
SPIFFY SHADES CORPORATION
Budget for production and Direct labor
For the First Quarter of 20x1
January
Febraury
March
Quarter
Sales (units)
13000
15000
11000
39000
Ending inventory
19400
15800
16800
52000
Total needs
32400
30800
27800
91000
Deduct beginning inventory
-19000
-19400
-15800
-54200
Units to be produced
13400
11400
12000
36800
Direct Labor hours per unit
1
1
0.75
Total hours of direct labor time needed
13400
11400
9000
33800
Direct labor costs
Wages (13 per DLH)
174200
148200
117000
439400
Pension contributions ($1.55 DLH)
20770
17670
13950
52390
worker compensation insurance($1.25 per hour)
16750
14250
11250
42250
Employee medical insurance ($5 per hour)
67000
57000
45000
169000
Employee social security (13*5%)
8710
7410
5850
21970
Total direct labor cost
287430
244530
193050
725010
Ending inventory
January
100% of 15000 + 40% of 11000
Febraury
100% of 11000 + 40% 0f 12000
May
100% of 12000 + 40% of 12000
SPIFFY SHADES CORPORATION
Budget for production and Direct labor
For the First Quarter of 20x1
January
Febraury
March
Quarter
Sales (units)
13000
15000
11000
39000
Ending inventory
19400
15800
16800
52000
Total needs
32400
30800
27800
91000
Deduct beginning inventory
-19000
-19400
-15800
-54200
Units to be produced
13400
11400
12000
36800
Direct Labor hours per unit
1
1
0.75
Total hours of direct labor time needed
13400
11400
9000
33800
Direct labor costs
Wages (13 per DLH)
174200
148200
117000
439400
Pension contributions ($1.55 DLH)
20770
17670
13950
52390
worker compensation insurance($1.25 per hour)
16750
14250
11250
42250
Employee medical insurance ($5 per hour)
67000
57000
45000
169000
Employee social security (13*5%)
8710
7410
5850
21970
Total direct labor cost
287430
244530
193050
725010
Ending inventory
January
100% of 15000 + 40% of 11000
Febraury
100% of 11000 + 40% 0f 12000
May
100% of 12000 + 40% of 12000
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