Spitty Shades Corporation manufactures art stic frames for sung asses. Talia Dem

ID: 2549778 • Letter: S

Question

Spitty Shades Corporation manufactures art stic frames for sung asses. 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 il reduce the direct labor per frame from 3.0 hours to 2.75 hours Labor-related costs Include pension contributions of $1.05 per hour, workers compensation insurance of $0.75 per hour, employee medical Insurance of $3 per hour, and employer contributions to Soclal Security equal to 7.00 percent of direct-labor wages. The cost of employee benefits paid by the company on its employees is treated as a direct-labor cost. Spifty Shades Corporation has a labor contract that calls for a wage Increase to $20.00 per hour on April 1, 20x1. Management expects to have 23,500 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 50 percent of the second following montn's sales. These and other data compiled by Demarest are summarized in the tollowing table. Direct-labor hours per unit Wage per direct-labor hour E timated unit alles Sales price per unit 62.00 59.50 59.5059.50 59.50 Production overhead: 3.0 3.0 2-75 2-75 2-75 $ 18.00 18.00 18.00 20.00 20.00 15,000 17,000 13,000 14,000 14,00 shipping and handling (per unit sold) Purchasing, material $4.004.00 4.00 4.00 4.00 handling, and inspection (per unit $ 5.00 5.00 5.00 5.00 5.00 Other production overhead (per direct-$ 6.00 $ 6.00 6.00 6.00 $ 6.00 labor hour) Required: 1 Prepare a production budget and a direct-labor budget for Spitty Shades C by month and for the first quarter of 20x1. Round "Direct-labor hours per unit" to 2 decimal places.) SHADES C Budget for Production and Direct Labor For the First Quarter of 20x1 Month Sales (units) Total needs 15,000 17,00013,000 15,000 17,00013,000 Units to be produced Direct-labor hours per unit Total hours of direct labor time needed Direct-labor costs: Workers' compensation Employee medical Employer's social security

Explanation / Answer

Solution

Particulars

January

February

March

Quarter

Sales (units)

15,000

17,000

13,000

Less: Opening finished Inventory

(23,500)

(20,000)

Add: Ending finished Inventory

23,500

20,000

21,000

Units to be produced (A)

15,000

13,500

14,000

Direct-Labor hours per unit (B)

3.0

2.75

Total hours of Direct-Labor time needed (C=A X B)

45,000

40,500

38,500

Direct labor cost:

Wages ($ 18 per hour for January , February and March)

810,000

729,000

693,000

Pension Contribution (Given:$ 1.05 per hour )

47,250

42,525

40,425

Workers’ Compensation insurance (Given:$ 0.75 per hour )

33,750

30,375

28,875

Employee medical insurance (Given:$ 3 per hour )

135,000

121,500

115,500

Employer’s contribution to social security (7 % of direct labor wages)

56,700

51,030

48,510

Total Direct-Labor Cost

1,082,700

974,430

926,310

Total Direct-Labor Cost for the first Quarter ($ 1,082,700 + 974,430 + 926,310)

2,983,440

*Given information regarding ending inventory

=Ending inventory will be 100 % of following month sales + 50 % of second following month sales

January Ending inventory = 100 % of February sales + 50 % of March sales

= 100 % of 17,000 + 50% of 13,000

= 17,000 + 6,500

= 23,500 units

February Ending inventory = 100 % of March sales + 50 % of April sales

= 100 % of 13,000 + 50% of 14,000

= 13,000 + 7,000

= 20,000 units

March Ending inventory = 100 % of April sales + 50 % of May sales

= 100 % of 14,000 + 50% of 14,000

= 14,000 + 7,000

= 21,000 units

Note: Ending inventory of a month will be opening inventory of next month.