Required information Problem 9-31 Production and Direct-Labor Budgets; Activity-

Question

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 January February March 0.75 $ 13.00 13.00 13.00 11,000 $ 60.00 57.50 57.50 April 0.75 May Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: 0.75 15.00 15.00 12,000 57.50 57.50 13,000 15,000 12,000 Shipping and handling (per unit sold) $4.00 Purchasing, material handling, and 4.00 4.004.00 4.00 $ 5.00 5.00 5.00 5.00 5.00 $ 4.00 4.004.00 4.004.00 inspection (per unit produced) Other production overhead (per direct- labor hour)

Explanation / Answer

3 Production budget Month January February March Quarter Shipping and Handling (Note:1) 52000 60000 44000 156000 Purchasing,material handling and inspection (Note:2) 77000 37000 65000 179000 Other overhead (Note:3) 61600 29600 39000 130200 Total production overhead 190600 126600 148000 465200 Notes: 1. Shipping and handling cost-Based on number of units sold Month January February March Quarter Estimated unit sales 13000 15000 11000 39000 Shipping and handling (per unit) 4 4 4 Shipping and handling cost 52000 60000 44000 156000 2. Purchasing,material handling and inspection-Based on units produced Month January February March April May Estimated unit sales 13000 15000 11000 12000 12000 Add:Ending inventory 100% of following month's sales (A) 15000 11000 12000 40% of second following month's sales 4400 4800 4800 (11000*40%) (12000*40%) (12000*40%) (B) 19400 15800 16800 Total production required (A)+(B) 34400 26800 28800 Less:Beginning inventory 19000 19400 15800 Products to be manufactured 15400 7400 13000 Purchasing,material handling and inspection (Per unit) 5 5 5 Purchasing,material handling and inspection (Total cost) 77000 37000 65000 3. Other overhead cost-based on direct labor hours Month January February March Products to be manufactured 15400 7400 13000 Direct-labor hours per unit 1 1 0.75 Total direct labor hours 15400 7400 9750 Other overhead cost (per unit) 4 4 4 Other overhead cost (in total) 61600 29600 39000

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