Peterson Company makes and sells artistic picture frames for special events such
ID: 2574468 • Letter: P
Question
Peterson Company makes and sells artistic picture frames for special events such as weddings and graduations. BobAnderson, thecontroller, is responsible for preparing Peterson’s master budget and has accumulated the following information for 2013...
2013
January
February
March
April
May
Estimated sales in units
14,000
15,000
9,000
10,000
10,000
Selling price
$55.00
$52.50
$52.50
$52.50
$52.50
Direct manufacturing labor-hours per unit
2.5
2.5
1
1
1
Wage per direct manufacturing labor-hour
$12.00
$12.00
$12.00
$14.00
$14.00
In addition to wages, direct manufacturing labor-related costs include pension contributions of
$0.40
per hour, worker's compensation insurance of
$0.10
per hour, employee medical insurance of
$0.30
per hour, and Social Security taxes. Assume that as of January 1,
2013
the Social Security tax rates are 7.5% for employers and 7.5% for employees. The cost of employee benefits paid by
Peterson
on its employees is treated as a direct manufacturing labor cost.
Peterson has a labor contract that calls for a wage increase to
$ 14 per hour on April1, 2013. The company will install new labor-saving machinery by March 1,
2013. Peterson expects to have 19,500 frames on hand at December 31, 2012,
and it has a policy of carrying an end-of-month inventory of 100% of the following month's sales plus 50% of the second following month's sales.
Requirement 1.
Prepare a production budget and a direct manufacturing labor budget for
Peterson Company by month and for the first quarter of
2013.
You may combine both budgets in one schedule.
The direct manufacturing labor budget should include labor-hours and show the details for each labor cost category.
Start the schedule by preparing the production budget and calculating the total hours of direct manufacturing labor time needed for the three months in thequarter, then calculate the values for the quarter. Finish by preparing the bottom portion of the schedule for the direct manufacturing labor bymonth, then quarter. (Round your answers to the nearest wholenumber.)
Prepare a production budget and a direct manufacturing labor budget for
PetersonPeterson
Company by month and for the first quarter of
2013
You may combine both budgets in one schedule. The direct manufacturing labor budget should include labor-hours and show the details for each labor cost category.
2.
What actions has the budget process prompted
Petersons management to take?
3.
How might Peterson's managers use the budget developed in requirement 1 to better manage the company?
2013
January
February
March
April
May
Estimated sales in units
14,000
15,000
9,000
10,000
10,000
Selling price
$55.00
$52.50
$52.50
$52.50
$52.50
Direct manufacturing labor-hours per unit
2.5
2.5
1
1
1
Wage per direct manufacturing labor-hour
$12.00
$12.00
$12.00
$14.00
$14.00
In addition to wages, direct manufacturing labor-related costs include pension contributions of
$0.40
per hour, worker's compensation insurance of
$0.10
per hour, employee medical insurance of
$0.30
per hour, and Social Security taxes. Assume that as of January 1,
2013
the Social Security tax rates are 7.5% for employers and 7.5% for employees. The cost of employee benefits paid by
Peterson
on its employees is treated as a direct manufacturing labor cost.
Explanation / Answer
Part 1.- Direct labour budget and production budget
Synopsis:-
Production budget - Production budget shows the quantity produced during a particular period. It is expressed in units. The budget measures the capacity variances of practical capacity, maximum capacity and budgted capacity.
Labour budget - It is the budgetd labour cost statement to estimate the the labour cost. It helps in efficient decision making and cost bebefit analysis.
19500
(15000 *100%) + (9000 * 50%)
14000
(9000 * 100%) + (10000 * 50%)
15000
(10000 * 100%) + (10000 * 50%)
19500
( given)
$420000
($12 * 35000)
$285000
($12 * 23750)
$120000
($12 * 10000)
Part 2 Peterson's managers need to take some actions in this budgeting process.
Actions like looking for new alternatives for reducing the closing finish goods inventory.
Analysing the labour cost per machine hour before installing the cost saving machinery and after installing the cost saving machinery.
Actions for analysing pension contribution and medical contriburtion can be taken since such are attractive benefits which makes peterson company attractive.
Part 3 - Since the labout cost is increasing from April. Hence mangers have taken some decision seeing the budget like installing new labour cost saving machinery.
Other decision manager's can take are consistent communication which working with them and Efficient management of labour to increase the labour productivity which ultimately would increase the margin.
Particulars January February March Total Quarter Budgted sales 14000 15000 9000 38000 + Closing inventory19500
(15000 *100%) + (9000 * 50%)
14000
(9000 * 100%) + (10000 * 50%)
15000
(10000 * 100%) + (10000 * 50%)
48500 Total requirements 33500 29000 24000 86500 - Opening Inventory19500
( given)
19500 (closing inventory of january) 14000 (closing inventory of February) 53000 Units to be produced 14000 9500 10000 33500 Direct labour budget :- Direct labour hours per unit 2.5 2.5 1 Total direct labour hours required budgeted 35000 23750 10000 68750 Direct manufacturing labour cost :- 1. Wages cost ($12 per direct labour hour)$420000
($12 * 35000)
$285000
($12 * 23750)
$120000
($12 * 10000)
$825000 2. Pension contribution ($0.4 per direct labour hour) $14000 $9500 $4000 $27500 3. Workers compensation insurance (0.1 per direct labour hour) $3500 $2375 $1000 $6875 4. Employee medical insurance (0.3 per direct labour hour) $10500 $7125 $3000 $20625 4. Social security tax ($12 * 7.5% = $0.9 per direct labour hour) $31500 $21375 $9000 $61875 Total direct manufacturing labour cost $479500 $325375 $137000 $941875 Note : employee contribution towards security tax is irrelevant since it is withheld and hence only employer contribution will the cost to peterson company.Related Questions
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