Question

Required information [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 3.0 hours to 2.75 hours. Labor-related costs include pension contributions of $1.05 per hour, workers' compensation insurance of $0.75 per hour, employee medical insurance of $3 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 $14.00 per hour on April 1, 20x1. Management expects to have 17,500 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. January 3.0 $ 12.00 11,000 $ 52.00 February 3.0 $ 12.00 13,000 $ 49.50 March 2.75 $12.00 9,000 $49.50 April 2.75 $ 14.00 10,000 $ 49.50 May 2.75 $ 14.00 10,000 $ 49.50 Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: Shipping and handling (per unit sold) Purchasing, material handling, and inspection (per unit produced) Other production overhead (per direct- labor hour) $ $ $ 2.00 3.00 5.00 $ 2.00 $ 3.00 $ 5.00 $ 2.00 $ 3.00 $ 5.00 $ $ $ 2.00 3.00 5.00 $ 2.00 $ 3.00 $ 5.00 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 Shipping and handling Purchasing, material handling, and inspection Other overhead Total production overhead 0 $ 0 March Quarter $ 0 S 0

Answer 1

B10 A B D E F G H I april 10,000 may 10,000 sales units add: ending inventory total needs less: beginning inventory production units january 11,000 17,500 28,500 17,500 11,000 february 13,000 14,000 27,000 17,500 9,500 march 9,000 15,000 24,000 14,000 10,000 SPIFFY SHADES CORPORATION production overhead budget for the first quarter of 20x1 month january February shipping and handling $ 22,000 $ 26,000 purchasing, material handling, and inspection $ 33,000 $28,500 other overhead $ 165,000 $ 142,500 total production overhead $ 220,000 $ 197,000 march $ 18,000 $30,000 $ 137,500 $ 185,500 q uarter $ 66,000 $91,500 $ 445,000 $ 602,500

for formulas and calculations, refer to the image below -

B10 E x fac 5 march april 10000 may 10000 sales units add: ending inventory total needs less: beginning inventory production units january february rch 11000 13000 9000 =(E4*100%)+(F4*50%) =(F4*100%)+(G4*50%) I=(G4*100%)+(H4*50%) =D4+D5 =E4+E5 =F4+F5 =(D4*100%)+(E4*50%) =D5 =D6-D7 -E6-EZ =F6-F7 -ES SPIFFY SHADES CORPORATION production overhead budget for the first quarter of 20x1 month january february =E4*2 D8*3 =E8*3 D8*3*5 =E8*3*5 =SUM(D15:D17) =SUM(E15:E17) march quarter =D4*2 shipping and handling purchasing, material handling, and inspection other overhead total production overhead =F4*2 =F8*3 =F8*2.75*5 =SUM(F15:F17) =SUM(D15:F15) =SUM(D16:F16) =SUM(D17:F17) =SUM(D18:F18)

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