Shady Shades, Inc., manufactures artistic frames for sunglasses.

Talia Demarest, controller, is responsible for preparing the

companyAc??cs 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 hour to 0.75 hours.

     Labor-related costs include

pension contributions of $0.50 per hour, workersAc??c compensation

insurance of $0.20 per hour, employee medical insurance of $0.80

per hour, and employer contributions to Social Security equal to 7

percent of direct-labor wages. The cost of employee benefits paid

by the company on its employees is treated as a direct-labor cost.

Shady Shades, Inc., has a labor contract that calls for a wage

increase to $18.00 per hour on April 1, 20x1. Management expects to

have 32,000 frames on hand at December 31, 20x0, and has a policy

of carrying an end-of-month inventory of 100 percent of the

following monthAc??cs sales plus 50 percent of the second following

monthAc??cs 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

$

16.00

$

16.00

$

16.00

$

18.00

$

18.00

  Estimated unit sales

20,000

24,000

16,000

18,000

18,000

  Sales price per unit

$

50.00

$

47.50

$

47.50

$

47.50

$

47.50

  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)

$

4.50

$

4.50

$

4.50

$

4.50

$

4.50

  Other production overhead

     (per direct-labor hour)

$

10.50

$

10.50

$

10.50

$

10.50

$

10.50

1. Prepare a production budget and a direct-labor budget for

Shady Shades, Inc., by month and in total for the first quarter of

20x1.

SHASY SHADES, INC.

BUDGET FOR PRODUCTION AND DIRECT LABOR

FOR THE FIRST QUARTER OF 20X1

MONTH

JANURARY

FEBURARY

MARCH

QUARTER

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

WORKERSAc??c COMPENSATION INSURANCE

EMPLOYEE MEDICAL INSURANCE

EMPLOYERAc??cS SOCIAL SECURITY

TOTAL DIRECT-LABOR COST

SHADY SHADES, INC

PRODUCTION OVERHEAD BUDGET

FOR THE FIRST QUARTER OF 20X1

MONTH

JANURARY

FEBURARY

MARCH

QUARTER

SHIPPING AND HANDLING

PURCHASING, MATERIAL HANDLING, AND INSPECTION

OTHER OVERHEAD

TOTAL PRODUCTION OVEHEAD