Question

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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 $1.55 per hour, workers’ compensation insurance of $1.25 per hour, employee medical insurance of $5 per hour, and employer contributions to Social Security equal to 6.00 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 $21.00 per hour on April 1, 20x1. Management expects to have 26,000 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.

	January			February			March			April			May
Direct-labor hours per unit		4.0			4.0			3.75			3.75			3.75
Wage per direct-labor hour	$	19.00		$	19.00		$	19.00		$	21.00		$	21.00
Estimated unit sales		18,000			20,000			16,000			17,000			17,000
Sales price per unit	$	54.00		$	51.50		$	51.50		$	51.50		$	51.50
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)	$	4.00		$	4.00		$	4.00		$	4.00		$	4.00
Other production overhead (per direct-labor hour)	$	6.00		$	6.00		$	6.00		$	6.00		$	6.00

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) Total needs 0 0 0 0 Units to be produced 0 0 0 0 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

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.)

Sales data:

Selling and administrative expense budget

Production-overhead budget

Direct-material budget

Cash budget

Cost-of-goods-sold budget

Sales budget

Cash disbursements budget

Production data:

Selling and administrative expense budget

Direct-material budget

Cost-of-goods-sold budget

Production-overhead budget

Cash budget

Cash disbursements budget

Sales budget

Direct-labor-hour data:

Selling and administrative expense budget

Production-overhead budget

Direct-material budget

Cash budget

Cost-of-goods-sold budget

Sales budget

Cash disbursements budget

Direct-labor cost data:

Selling and administrative expense budget

Production-overhead budget

Direct-material budget

Cash budget

Sales budget

Cost-of-goods-sold budget

Cash disbursements budget

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