Shady Shades, Inc., manufactures artistic frames for sunglasses. Talia Demarest, controller, is responsible for preparing the companyAc€?cs master budget. In compiling the budget data for 20×1, Demarest has learned that new automated production equipment will be installed on March 1. This will reduce the direct labor per frame from 1 hour to 0.75 hours.
Labor-related costs include pension contributions of $0.50 per hour, workersAc€?c compensation insurance of $0.20 per hour, employee medical insurance of $0.80 per hour, and employer contributions to Social Security equal to 7 percent of direct-labor wages. The cost of employee benefits paid 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 $18.00 per hour on April 1, 20×1. Management expects to have 32,000 frames on hand at December 31, 20×0, and has a policy of carrying an end-of-month inventory of 100 percent of the following monthAc€?cs sales plus 50 percent of the second following monthAc€?cs sales.
These and other data compiled by Demarest are summarized in the following table.
January
February
March
April
May
Direct-labor hours per unit
1.0
1.0
0.75
0.75
0.75
Wage per direct-labor hour
$
16.00
$
16.00
$
16.00
$
18.00
$
18.00
Estimated unit sales
20,000
24,000
16,000
18,000
18,000
Sales price per unit
$
50.00
$
47.50
$
47.50
$
47.50
$
47.50
Production overhead:
Shipping and handling (per unit sold)
$
3.00
$
3.00
$
3.00
$
3.00
$
3.00
Purchasing, material handling,
and inspection (per unit produced)
$
4.50
$
4.50
$
4.50
$
4.50
$
4.50
Other production overhead
(per direct-labor hour)
$
10.50
$
10.50
$
10.50
$
10.50
$
10.50
1. Prepare a production budget and a direct-labor budget for Shady Shades, Inc., by month and in total for the first quarter of 20×1.
SHASY SHADES, INC.
BUDGET FOR PRODUCTION AND DIRECT LABOR
FOR THE FIRST QUARTER OF 20X1
MONTH
JANURARY
FEBURARY
MARCH
QUARTER
SALES (UNITS)
ADD: ENDING INVENTORY
TOTAL NEEDS
LESS: BEGINNING INVENTORY
UNITS TO BE PRODUCED
DIRECT-LABOR HOURS PER UNIT
TOTAL HOURS OF DIRECT LABOR TIME NEEDED
DIRECT-LABOR COSTS:
WAGES
PENSION CONTRIBUTIONS
WORKERSAc€?c COMPENSATION INSURANCE
EMPLOYEE MEDICAL INSURANCE
EMPLOYERAc€?cS SOCIAL SECURITY
TOTAL DIRECT-LABOR COST
2. Prepare a production-overhead budget for each month and for the first quarter.
SHADY SHADES, INC
PRODUCTION OVERHEAD BUDGET
FOR THE FIRST QUARTER OF 20X1
MONTH
JANURARY
FEBURARY
MARCH
QUARTER
SHIPPING AND HANDLING
PURCHASING, MATERIAL HANDLING, AND INSPECTION
OTHER OVERHEAD
TOTAL PRODUCTION OVEHEAD