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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)

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[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 companys 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 3.0 hours to 2.75 hours. 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 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 $18.00 per hour on April 1, 20x1. Management expects to have 21,400 frames on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following months sales plus 30 percent of the second following months sales. These and other data compiled by Demarest are summarized in the following table.

	January			February			March			April			May
Direct-labor hours per unit		3.0			3.0			2.75			2.75			2.75
Wage per direct-labor hour	$	16.00		$	16.00		$	16.00		$	18.00		$	18.00
Estimated unit sales		16,000			18,000			14,000			15,000			15,000
Sales price per unit	$	68.00		$	65.50		$	65.50		$	65.50		$	65.50
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)	$	9.00		$	9.00		$	9.00		$	9.00		$	9.00

Problem 9-31 Part 1

Required: 1a. Prepare a production budget and a direct-labor budget for Spiffy Shades Corporation by month and for the first quarter of 20x1.

1b. Prepare a production overhead budget for each month and for the first quarter.

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 0 0 0 0 Units to be produced Direct-labor hours per unit Total hours of direct labor time needed 0 0 0 5 Direct-labor costs: Wages Pension contributions Workers' compensation insurance Employee medical insurance Employer's social security Total direct-labor cost $ 0 $ 0 $ 0 $ 0 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