Shibby ades Incorporated manufact for sunglasses. Tal 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 3.0 hours to 2.75 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 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. Shibby Shades Incorporated has a labor contract that calls for a wage increase to $18.00 per hour on April 1, 20x1. Management expects to have 29,500 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 50 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales January 3.0 $ 16.00 19,000 Sales price per unit $ 60.00 February 3.0 $ 16.00 21,000 $ 57.50 March 2.75 $ 16.00 17,000 $ 57.50 April 2.75 $ 18.00 18,000 $ 57.50 May 2.75 $ 18.00 18,000 $ 57.50 Production overhead: Shipping and handling (per unit sold) $ 6.00 $ 6.00 $ 6.00 $ 6.00 $ 6.00 Purchasing, material handling, and inspection (per unit produced) $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00 Other production overhead (per direct-labor hour) $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 Required:
Shibby ades Incorporated manufact for sunglasses. Tal 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 3.0 hours to 2.75 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 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. Shibby Shades Incorporated has a labor contract that calls for a wage increase to $18.00 per hour on April 1, 20x1. Management expects to have 29,500 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 50 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales January 3.0 $ 16.00 19,000 Sales price per unit $ 60.00 February 3.0 $ 16.00 21,000 $ 57.50 March 2.75 $ 16.00 17,000 $ 57.50 April 2.75 $ 18.00 18,000 $ 57.50 May 2.75 $ 18.00 18,000 $ 57.50 Production overhead: Shipping and handling (per unit sold) $ 6.00 $ 6.00 $ 6.00 $ 6.00 $ 6.00 Purchasing, material handling, and inspection (per unit produced) $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00 Other production overhead (per direct-labor hour) $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 Required:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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Transcribed Image Text:Shibby Shades Incorporated 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 3.0 hours to 2.75 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 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.
Shibby Shades Incorporated has a labor contract that calls for a wage increase to $18.00 per hour on April 1, 20x1.
Management expects to have 29,500 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 50 percent of the second following month's sales.
These and other data compiled by Demarest are summarized in the following table.
Direct labor hours per unit
Wage per direct-labor hour
Estimated unit sales
Sales price per unit
January
3.0
$ 16.00
February
3.0
19,000
$ 60.00
$ 16.00
21,000
$ 57.50
March
2.75
$ 16.00
17,000
$ 57.50
April
2.75
May
$ 18.00
18,000
$ 57.50
2.75
$ 18.00
18,000
$ 57.50
Production overhead:
Shipping and handling (per unit sold)
$ 6.00
$ 6.00
$ 6.00
$ 6.00
$ 6.00
Purchasing, material handling, and inspection (per unit
produced)
$ 7.00
$ 7.00
$ 7.00
$ 7.00
$ 7.00
Other production overhead (per direct-labor hour)
$ 5.00
$ 5.00
$ 5.00
$ 5.00
$ 5.00
Required:
1. Prepare a production budget and a direct-labor budget for Shibby Shades Incorporated by month and for the first quarter of 20x1.
Note: Round "Direct-labor hours per unit" to 2 decimal places.
Sales (units)
Add: Ending inventory
Total needs
Less: Beginning inventory
Units to be produced
Direct-labor hours per unit
Total hours of direct labor time needed
Direct-labor costs:
Wages
Pension contributions
Workers' compensation insurance
Employee medical insurance
Employer's social security
Total direct-labor cost
SHIBBY SHADES INCORPORATED
Budget for Production and Direct Labor
For the First Quarter of 20x1
January
Month
February
Quarter
March
19,000
21,000
17,000
57,000
19,000
21,000
17,000
57,000
19,000
21,000
17,000
57,000
0
0
0
0
$
0
$
0
$
0
$
0
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