LearnCo manufactures and sells one product, an abacus for classroom use, with two models, the Basic model and the Deluxe model. The company began operations
LearnCo manufactures and sells one product, an abacus for classroom use, with two models, the Basic model and the Deluxe model. The company began operations on January 1, 2015, and is planning for 2016, its second year of operations, by preparing budgets from its master budget.
The company is trying to decide how many units to manufacture, how much it might spend on direct materials and direct labor, and what their factory overhead expenses might be. In addition, the company is interested in budgeting for selling and administrative costs, and in creating a budgeted income statement showing a prediction of net income for 2016.
You have been asked to assist the controller of LearnCo in preparing the 2016 budgets.
Sales Budget
The sales budget often uses the prior year’s sales as a starting point, and then sales quantities are revised for various factors such as planned advertising and promotion, projected pricing changes, and expected industry and general economic conditions. LearnCo has completed reviewing its prior year’s sales and has prepared the sales budget below.
After reviewing LearnCo’s sales budget, you note that three numbers have been omitted. The company’s controller has told you that the units sold for the Basic and Deluxe models are expected to be the same. Fill in the missing amounts.
| LearnCo | |||
| Sales Budget | |||
| For the Year Ending December 31, 2016 | |||
| Product | Unit Sales Volume | Unit Selling Price | Total Sales |
| Basic Abacus | | $7.00 | $252,000 |
| Deluxe Abacus | | | 468,000 |
| Totals | 72,000 | | $720,000 |
Production Budget
The production budget should be integrated with the sales budget to ensure that production and sales are kept in balance during the year. The production budget estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels. The production budget for LearnCo is presented below.
You note that LearnCo has omitted six numbers from the production budget and fill in the missing amounts. You may need to use numbers from the sales budget you prepared.
| LearnCo | ||
| Production Budget | ||
| For the Year Ending December 31, 2016 | ||
| | Units Basic | Units Deluxe |
| Expected units to be sold (from Sales Budget) | | |
| Plus desired ending inventory, December 31, 2016 | 1,000 | 3,000 |
| Total | | |
| Less estimated beginning inventory, January 1, 2016 | 1,050 | 2,100 |
| Total units to be produced | | |
Direct Materials Purchases Budget
The direct materials purchases budget should be integrated with the production budget to ensure that production is not interrupted during the year. This budget estimates the quantities of direct materials to be purchased to support budgeted production, along with desired inventory levels of direct materials.
Before you make any changes to the budget, you review the information in the Direct Materials Data Table below and enter the units to be produced from the Production Budget panel. After scanning the direct materials purchases budget (which is found below the Direct Materials Data Table), you observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. You may need to use numbers from the Direct Materials Data Table, or from the sales budget and production budget you prepared. When required, round your answers to the nearest dollar.
| Direct Materials Data Table | | |
| | Wood Pieces | Beads |
| Packages required per unit: | | |
| Basic abacus | 1 | 2 |
| Deluxe abacus | 2 | 3 |
| Cost per package: | | |
| Wood pieces | $0.25 | |
| Beads | $0.25 | |
| Units to be produced (from Production Budget): | | |
| Basic abacus | | |
| Deluxe abacus | | |
| LearnCo | |||
| Direct Materials Purchases Budget | |||
| For the Year Ending December 31, 2016 | |||
| | Wood Pieces | Beads | Total Direct Materials |
| Packages required for production: | | | |
| Basic abacus | | | |
| Deluxe abacus | | | |
| Plus desired inventory, December 31, 2016 | 2,200 | 5,000 | |
| Total | | | |
| Less estimated inventory, January 1, 2016 | 3,500 | 4,500 | |
| Total packages to be purchased | | | |
| Unit price (per package) | x | x | |
| Total direct materials to be purchased | | | $72,888 |
Direct Labor Cost Budget
Direct labor needs from the direct labor cost budget should be coordinated between the production and personnel departments so that there will be enough labor available for production.
Before you make any changes to the budget, you review the information in the Direct Labor Data Table below and enter the units to be produced from the Production Budget panel. After scanning the Direct Labor Cost Budget (which is below the Direct Labor Data Table), you observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. You may need to use numbers from the Direct Labor Data Table, or from the sales budget, production budget, and direct materials purchases budget you prepared. When required, round your answers to the nearest dollar.
| Direct Labor Data Table | | |
| | Gluing | Assembly |
| Hours required per unit: | | |
| Basic abacus | 0.10 | 0.10 |
| Deluxe abacus | 0.10 | 0.20 |
| Labor hourly rate: | | |
| Gluing | $12.00 | |
| Assembly | $17.00 | |
| Units to be produced (from Production Budget): | | |
| Basic abacus | | |
| Deluxe abacus | | |
| LearnCo | |||
| Direct Labor Cost Budget | |||
| For the Year Ending December 31, 2016 | |||
| | Gluing | Assembly | Total Direct Labor |
| Hours required for production: | | | |
| Basic abacus | | | |
| Deluxe abacus | | | |
| Total | | | |
| Times hourly rate | x | x | |
| Total direct labor cost | | | $273,995 |
Factory Overhead Cost Budget
The factory overhead cost budget should be integrated with the production budget to ensure that production is not interrupted during the year. This budget may be supported by departmental schedules, which normally separate factory overhead costs into fixed and variable costs so that department managers may monitor and evaluate costs during the year. For simplicity, LearnCo has not separated costs in this manner.
After reviewing the factory overhead cost budget below, you note that LearnCo has completed the budget with the exception of one amount. Fill in the missing amount.
| LearnCo | |
| Factory Overhead Cost Budget | |
| For the Year Ending December 31, 2016 | |
| Indirect factory wages | $5,400 |
| Power and light | |
| Depreciation of plant and equipment | 1,450 |
| Total | $18,100 |
Cost of Goods Sold Budget
The cost of goods sold budget integrates the direct materials purchases budget, direct labor cost budget, and factory overhead cost budget. Estimated and desired inventories for direct materials, work in process, and finished goods must also be integrated into the cost of goods sold budget. LearnCo has gathered some of the information for this budget below.
Complete the preparation of the cost of goods sold budget for LearnCo, using information provided by the controller below, and using the previous budgets you have prepared.
| LearnCo | |||
| Cost of Goods Sold Budget | |||
| For the Year Ending December 31, 2016 | |||
| Finished goods inventory, January 1, 2016 | | | $9,870 |
| Work in process inventory, January 1, 2016 | | $2,010 | |
| Direct materials: | | | |
| Direct materials inventory, January 1, 2016 | $2,000 | | |
| Direct materials purchases | | | |
| Cost of direct materials available for use | $ | | |
| Less direct materials inventory, December 31, 2016 | 1,800 | | |
| Cost of direct materials placed in production | $ | | |
| Direct labor | | | |
| Factory overhead | | | |
| Total manufacturing costs | | | |
| Total work in process during period | | $ | |
| Less work in process inventory, December 31, 2016 | | 1,250 | |
| Cost of goods manufactured | | | |
| Cost of finished goods available for sale | | | $ |
| Less finished goods inventory, December 31, 2016 | | | 1,500 |
| Cost of goods sold | | | $ |
Selling/Admin Expenses Budget
The sales budget is often used as the starting point for the selling and administrative expenses budget. For example, a budgeted increase in sales may require more advertising expenses. LearnCo has prepared its selling and administrative expenses budget below. This budget is merely reviewed by you for use in the budgeted income statement.
| LearnCo | ||
| Selling and Administrative Expenses Budget | ||
| For the Year Ending December 31, 2016 | ||
| Selling expenses: | | |
| Sales salaries expense | $45,000 | |
| Advertising expense | 15,000 | |
| Travel expense | 5,400 | |
| Total selling expenses | | $65,400 |
| Administrative expenses: | | |
| Officers' salaries expense | $85,000 | |
