Please examine the texts provided thoroughly to identify and correct any spelling, typographical, grammatical, OCR (optical character recognition), and mathematical errors, including any errors related to the square root symbol. Ensure that the entire text is properly formatted and presented in a clear, coherent manner. Only correct errors, Do not answer it.
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Texts: 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 $0.55 per hour, workers' compensation insurance of $0.25 per hour, employee medical insurance of $1 per hour, and employer contributions to Social Security equal to 8.00 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 $14.00 per hour on April 1, 20x1. Management expects to have 23,500 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 February March 3.0 3.0 2.75
April 2.75
May 2.75
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)
12.00 15,000 $68.00
12.00 17,000
12.00 13,000
14.00 14,000
14.00 14,000 $65.50
$65.50
$65.50
$65.50
$5.00 $6.00
$5.00 $6.00
$5.00 $6.00
$5.00 $6.00
$5.00 $6.00
$8.00
$8.00
$8.00
$8.00
$8.00
Required:
1. Prepare a production budget and a direct-labor budget for Shibby Shades Incorporated by month and for the first quarter of 20x1 (4 marks).
2. Critically discuss what is a master budget and why is it important for managers (6 marks)
