Required information [The following information applies to the questions display

Question

Required information [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 4.0 hours to 3.75 hours Labor-related costs include pension contributions of $0.80 per hour, workers' compensation insurance of $0.50 per hour, employee medical insurance of $2 per hour, and employer contributions to Social Security equal to 4.00 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 $19.00 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 April 3.75 May 3.75 January February March Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: 4.0 4.0 3.75 $ 17.00 17.00 17.00 19.00 19.00 11,000 $ 68.00 65.50 65.50 65.50 65.50 13,000 15,000 12,000 12,000 Shipping and handling (per unit sold) 4.00 $4.004.00 Purchasing, material handling, and 4.00 4.00 inspection (per unit produced) $ 5.00 5.00 $5.00 5.00 5.00 Other production overhead (per direct- $ 8.00 8.00$ 8.00 $ 8.00 8.00 labor hour)

Explanation / Answer

Before calculating production overheads, we need to calculate budgeted units of production and total direct labour hours.

January February March Quarter Sales     13,000      15,000     11,000      39,000 Add: Ending inventory (100%+40% of following month sale)     19,400      15,800     16,800      16,800 Less: Beginning inventory (19,000) (19,400) (15,800)    (19,000) Budgeted production     13,400      11,400     12,000      36,800 January February March Quarter Budgeted production     13,400      11,400     12,000      36,800 Direct labour hour per unit 4.00 4.00 3.75 Total direct labour hour     53,600      45,600     45,000    144,200

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