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 $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. Spiffy Shades Corporation has a labor contract that calls for a wage increase to $17.00 per hour on April 1, 20x1. Management expects to have 16,000 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 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 Production overhead: Shipping and handling (per unit sold) Purchasing, material handling, and inspection (per unit produced) Other production overhead (per direct-labor hour) Problem 9-31 Part 3 Shipping and handling Purchasing, material handling, and inspection Other overhead Total production overhead January 4.0 $ 15.00 10,000 $ 60.00 $ 4.00 3. Prepare a production overhead budget for each month and for the first quarter. $ $ 5.00 SPIFFY SHADES CORPORATION Production Overhead Budget For the First Quarter of 20x1 January $ 8.00 0 $ February 4.0 $ 15.00 12,000 $ 57.50 $ 4.00 $ 5.00 $ 8.00 Month February 0 $ March 3.75 $ 15.00 8,000 $ 57.50 $ 4.00 $ 5.00 $ 8.00 March 0 $ April 3.75 $ 17.00 9,000 $ 57.50 $ 4.00 $5.00 $ 8.00 Quarter 0 May 3.75 $ 17.00 9,000 $ 57.50 $ 4.00 $ 5.00 $ 8.00

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…

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…