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P9.36(appendix) Production and direct labour budgets: manufacturerAlpha Mann Lid makes and sells computer carry bags. Bill Blake, the company accountant, is responsible forLO9.11preparing the company’s annual budget. In compiling the budget data for next year, Blake has learned thatnew automated production equipment will be installed on 1 March. This will reduce the direct labour per unitfrom 1 hour to 0.75 hour.Labour-related costs include employer superannuateon contributions of 9 per cent of employee wages,workers’ compensation insurance of \$0.20 per hour, and payroll tax equal to 7 per cent of employee wages.These on-costs are treated as an additional direct labour cost. The accountant estimates that a wage increasefor production workers of \$4.00 per hour will take place on 1 April.Management expects to have 16 000 bags on hand at the beginning of the budget year, and has a policyof carrying an end-of-month inventory of 100 per cent of the following month’s sales plus 50 per cent of thesecond following month’s sales.This and other data compiled by Blake are summarised in the following table:JanuaryFebruaryMarchAprilMayDirect labour hours per unit1.01.00.750.750.75Wage per direct labour hour\$32.00\$32.00\$32.00\$36.00\$36.00Estimated unit sales20 00024 00016 00018 00018 000Sales price per unit\$50.00\$47.50\$47.50\$47.50\$47.50Manufacturing overhead:Shipping and handling (per unit sold)\$ 3.00\$ 3.00\$ 3.00\$ 3.00\$ 3.00Purchasing and material handling (per\$ 4.50\$ 4.50\$ 4.50\$ 4.50\$ 4.50unit produced)Other (per direct labour hour)\$10.50\$10.50\$10.50\$10.50\$10.50Required:1. Prepare a production budget and a direct labour budget for Alpha Mann Lid, by month and for the firstquarter of the next budget year. Both budgets may be combined into a single schedule. The direct labourbudget should include direct labour hours and show the detail for each direct labour cost category.Z. For each item used in the firm’s production budget and direct labour budget, identify the other componentsof the annual budget that would also use these data.Prepare a manufacturing overhead budget for each month and for the first quarter.

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