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, 20Y1, and is planning for 20Y2, 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 20Y2.

You have been asked to assist the controller of LearnCo in preparing the 20Y2 budgets.

The sales budget often uses the prior years 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 years sales and has prepared the following sales budget.

LearnCo
Sales Budget
For the Year Ending December 31, 20Y2
Product	Unit Sales Volume	Unit Selling Price	Total Sales
Basic Abacus		$8.00	$288,000
Deluxe Abacus			432,000
Totals	72,000		$720,000

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.

LearnCo
Production Budget
For the Year Ending December 31, 20Y2
	Units Basic	Units Deluxe
Expected units to be sold (from Sales Budget)
Plus desired ending inventory, December 31, 20Y2	1,000	3,000
Total units required
Less estimated beginning inventory, January 1, 20Y2	1,050	2,100
Total units to be produced

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.

Direct Materials Data Table
	Wood Pieces	Beads
Packages required per unit:
Basic abacus	1	2
Deluxe abacus	2	3
Cost per package:
Wood pieces	$0.20
Beads	$0.20
Units to be produced (from Production Budget):
Basic abacus
Deluxe abacus

LearnCo
Direct Materials Purchases Budget
For the Year Ending December 31, 20Y2
	Direct Materials
	Wood Pieces	Beads	Total
Packages required for production:
Basic abacus
Deluxe abacus
Plus desired ending inventory, December 31, 20Y2	2,200	5,000
Total packages required
Less estimated beginning inventory, January 1, 20Y2	3,500	4,500
Total packages to be purchased
Unit price (per package)	x	x
Total direct materials to be purchased			$58,310

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.

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	$13.00
Assembly	$19.00
Units to be produced (from Production Budget):
Basic abacus
Deluxe abacus

LearnCo
Direct Labor Cost Budget
For the Year Ending December 31, 20Y2
	Gluing	Assembly	Total
Hours required for production:
Basic abacus
Deluxe abacus
Total hours required
Hourly rate	x	x
Total direct labor cost			$303,230

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.

LearnCo
Factory Overhead Cost Budget
For the Year Ending December 31, 20Y2
Indirect factory wages	$5,400
Power and light
Depreciation of plant and equipment	1,450
Total factory overhead cost	$18,100

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
Cost of Goods Sold Budget
For the Year Ending December 31, 20Y2
Finished goods inventory, January 1, 20Y2			$9,870
Work in process inventory, January 1, 20Y2		$2,010
Direct materials:
Direct materials inventory, January 1, 20Y2	$1,600
Direct materials purchases
Cost of direct materials available for use	$
Less direct materials inventory, December 31, 20Y2	1,440
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, 20Y2		1,250
Cost of goods manufactured
Cost of finished goods available for sale			$
Less finished goods inventory, December 31, 20Y2			1,500
Cost of goods sold			$

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 as follows. 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, 20Y2
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
Office salaries expense	35,000
Office rent expense	26,000
Office supplies expense	6,400
Miscellaneous administrative expenses	1,600
Total administrative expenses		154,000
Total selling and administrative expenses		$219,400

The budgeted income statement is prepared by integrating the sales budget, cost of goods sold budget, and selling and administrative expenses budget. Additional information that may be helpful in preparing the budgeted income statement are in the following Budgeted Income Statement Data Table.

Budgeted Income Statement Data Table
Interest revenue for the year	$2,000
Interest expense for the year	$1,500
LearnCos income tax rate	40%

LearnCo

Budgeted Income Statement

For the Year Ending December 31, 20Y2

1	Revenue from sales
2	Cost of goods sold
3	Gross profit
4	Selling and administrative expenses:
5	Selling expenses
6	Administrative expenses
7	Total selling and administrative expenses
8	Income from operations
9	Other revenue and expense:
10	Interest revenue
11	Interest expense
12	Income before income tax
13	Income tax
14	Net income

1. LearnCos controller believes that the company can decrease its selling expenses by 10% and its administrative expenses by 15%. How much would income before income tax increase if these expense cuts are implemented? Round your answer to the nearest dollar.