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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 $1.30 per hour, workers’ compensation insurance of $1.00 per hour, employee medical insurance of $4 per hour, and employer contributions to Social 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. 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 16,200 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			April			May
Direct-labor hours per unit		1.0			1.0			0.75			0.75			0.75
Wage per direct-labor hour	$	13.00		$	13.00		$	13.00		$	15.00		$	15.00
Estimated unit sales		11,000			13,000			9,000			10,000			10,000
Sales price per unit	$	64.00		$	61.50		$	61.50		$	61.50		$	61.50
Production overhead:
Shipping and handling (per unit sold)	$	2.00		$	2.00		$	2.00		$	2.00		$	2.00
Purchasing, material handling, and inspection (per unit produced)	$	3.00		$	3.00		$	3.00		$	3.00		$	3.00
Other production overhead (per direct-labor hour)	$	6.00		$	6.00		$	6.00		$	6.00		$	6.00

1. Prepare a production budget and a direct-labor budget for Spiffy Shades Corporation by month and for the first quarter of 20x1. (Round "Direct-labor hours per unit" to 2 decimal places.)

SPIFFY SHADES CORPORATION Budget for Production and Direct Labor For the First Quarter of 20x1 Month January February March Quarter Sales (units) 11,000 13,000 9,000 33,000 Add: Ending inventory Total needs 11,000 13,000 9,000 33,000 Units to be produced Direct-labor hours per unit Total hours of direct labor time needed 0 0 0 0 Direct-labor costs: Wages Pension contributions Workers' compensation insurance Employee medical insurance Employer's social security Total direct-labor cost $0 $0 $0 $0

2. For each item used in the firm’s production budget and direct-labor budget, select the other components of the master budget (except for financial statement budgets) that also, directly or indirectly, would use these data. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

1. Sales data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Sales budgetunanswered
• Cash disbursements budgetunanswered

2. Production data:

• Selling and administrative expense budgetunanswered
• Direct-material budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Production-overhead budgetunanswered
• Cash budgetunanswered
• Cash disbursements budgetunanswered
• Sales budgetunanswered

3. Direct-labor-hour data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Sales budgetunanswered
• Cash disbursements budgetunanswered

4. Direct-labor cost data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Sales budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Cash disbursements budget

3. Prepare a production overhead budget for each month and for the first quarter.

	SPIFFY SHADES CORPORATION Production Overhead Budget For the First Quarter of 20x1 Month January February March Quarter Shipping and handling Purchasing, material handling, and inspection Other overhead Total production overhead $0 $0 $0 $0

Answer 1

SPIFFY SHADES CORPORATION
Budget for Production and Direct Labor
For the First Quarter of 20x1
	Month
	January	February	March	Quarter
Sales (units)	11,000	13,000	9,000	33,000
Add: Ending inventory	16600	13000	14000	14,000
Total needs	27,600	26,000	23,000	47,000
Less:beginning inventory	16,200	16,600	13,000	16,200
Units to be produced	11,400	9,400	10,000	30,800
Direct-labor hours per unit	1	1	0.75
Total hours of direct labor time needed	11400	9400	7500	28300
Direct-labor costs:
Wages($13*hrs)	148200	122200	97500	367900
Pension contributions(1.3*hrs)	14820	12220	9750	36790
Workers' compensation insurance(1*hrs)	11400	9400	7500	28300
Employee medical insurance(4*hrs)	45600	37600	30000	113200
Employer's social security(7%*wages)	10374	8554	6825	25753
Total direct-labor cost	$230,394	$189,974	$151,575	$571,943
SPIFFY SHADES CORPORATION
Production Overhead Budget
For the First Quarter of 20x1
	Month
	January	February	March	Quarter
Shipping and handling	22000	26000	18000	66000
Purchasing, material handling, and inspection	34200	28200	30000	92400
Other overhead	68400	56400	45000	169800
Total production overhead	$124,600	$110,600	$93,000	$328,200
the above has been calcualte
shipping and handling
so like 11000 sales* $2
purchasing
on units to be produced 11400*3
other overheads on hrs 11400 hrs *6