Mastery Problem: Budgeting Learnco LeamCo 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, 2011, and is planning for 2012, its second year of operations, by preparing budgets from its master budget The company le 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 2012 You have been asked to assist the controller of Learno in preparing the 2072 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 economichonditions. Learco has completed reviewing ts prior year's sales and has prepared the following sales budget 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, 2012 Unit Selling Volume Sales 36,000 $216,000 Unit Sales Total Product Price Basic Abacus 56 Deluxe Abacus 36,000 14 504,000 Totals 72,000 $720,000 Check My Workmore Check My Works remaining 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. You note that Leamco has omitted six numbers from the following production budget and fit 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, 2012 Units Basic Units Deluxe Expected units to be sold (from Sales Budget) 36,000 36,000 Desired ending Inventory, December 31, 2012 1,000 3,000 Total units available 37,000 39,000 Estimated beginning inventory, January 1, 2012 (1,050) (7.100) Total units to be produced 35,950 36,900 Check My Won Be sure to include the expected units to be sold for each model from the Sales Budget. Then review the preparation of the production budfrt and how the amounts are computed. 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 your Before you make any changes to the budget, you review the information on the following Direct Materials Data Table and enter the units to be produced from the Check My Work more Check My Work uses remaining Production Budget. After scanning the direct materials purchases budget (which follows 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 Cost per package Wood pieces $0.20 Beads 50 20 Units to be produced (from Production Budget) Basic abacus 35,950 Deluxe abacus 36,900 LearnCo Direct Materials Purchases Budget For the Year Ending December 31, 2012 Direct Materials Wood Pieces Beads Total Packages required for production Dacabacus 35,050 73,900 Delebs 73,000 110,700 Desire inventory, December 31 5.000 2012 2,200 Chede My War Chadw Workman Emalina See and be submit Assignment for Grading 111,950 187,600 Total packages available Estimated Inventory, January 1, 2012 Total packages to be purchased Unit price (per package) Total direct materials to be purchased (3,500) 108,450 (4,500) 183,100 0.20 x 0.20 21,690 36,620 358,310 Feedback Check My Work Review an example of the direct materials purchases budget, and the computations for each part of the budget. You will need to use the information on the Direct Materials Data Table in your computations I 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 on the following Direct Labor Data Table and enter the units to be produced from the Production Budget. After scanning the Direct Labor Cost Budget (which follows the Direct Labor Data Table), you observe that Loannco has omitted quite a few numbers from the budget. Pul 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 doltar. Direct Labor Data Table Gluing Assembly Hour required per unit: Basic abacus 0.10 Deluxe abacus hoch 0.10 0.10 0.20 Check My Workmore Check My Works romaining Email instructor Save and East Submit Assignment for Grading $12 $19 Gluing Assembly Units to be produced (from Production Budget) Basic abacus Deluxe abacus LearnCo Direct Labor Cost Budget For the Year Ending December 31, 2042 Gluing Assembly Hours required for production Basic abacus 3,595 3,595 Total Deluxe abacus 3,690 7,380 Total 7,285 10,975 Hourly rate 12 19 Total direct labor cost 87,420 208,525 $295,945 Foto Check My Wor Review an example of the direct labor cost budget, and the computations for each part of the budget. You will need to use the information on the Direct Labor Data Table in your computations Factory Ovarhaat $9,870 $2,010 LearnCo Cost of Goods Sold Budget For the Year Ending December 31, 2012 Finished goods inventory, January 1, 2012 Work in process inventory, January 1, 2012 Direct materials: Direct materials inventory, January 1, 2012 $1,600 Direct materials purchases 58,310 Cost of direct materials available for use 59,910 Oirect materials inventory, December 31, 2012 (1.440) Cost of direct materials placed in production 73,088 Direct labor 292,255 Factory overhead 18,100 Total manufacturing costs Total work in process during period Work in process inventory, December 31, 2012 Cost of goods manufactured Cost of finished goods available for sale Finished goods inventory, December 31, 2012 Cost of goods sold 383,443 385,453 (1,250) 384.203 394,073 (1,500) 392,573 Selling/Admin. Expenses Budget Check My Work more Check My Works remaining Check My Work Review an example of the direct labor cost budget, and the computations for each part of the budget. You will need to use the information on the Direct Lab Data Table in your computations, 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 following factory overhead cost budget, you note that tearnCo 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, 20Y2 Indirect factory wages $5,400 Power and light 11,250 Depreciation of plant and equipment 1.450 Total factory overhead cost $18,100 Fudback Cho My Work You can "back into the missing number by computing from the total along with the other two values Cost of Goods Sold Budget The cost of goods sold budet integrates the direct materials purchases budget direct labor cost budoet. and factory overhead cost budget. Estimated and desired Check My Work more Check My Works remaining Total work in process during period 385,453 (1,250) Work in process inventory, December 31, 2012 Cost of goods manufactured Cost of finished goods available for sale Finished goods inventory, December 31, 2012 384,203 Cost of goods sold 394,073 (1,500) 392,573 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 me advertising expenses. LearnCo has prepared its selling and administrative expenses budget as follows. This budget is merely reviewed by you for use income statement Learn Co Selling and Administrative Expenses Budget For the Year Ending December 31, 2012 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 Check My Work 3 more Check My Work uses remaining Em Once suppresse Miscellaneous administrative expenses 1,600 Total administrative expenses 154,000 Total selling and administrative expenses $219,400 Budgeted Income Statement 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 on the following Budgeted Income Statement Data Table: Pierwww the Budgeted Income Statement Data Table, then complete the budgeted Income statement that follows the table. Round the computed amount for income tax to the nearest whole dollar Budgeted Income Statement Data Table Interest revenue for the year $2,000 Interest expense for the year Learn Cos Income tax rate 40% LearnCo Budgeted Income Statement For the Year Ending December 31, 2012 Revenue from sales 720,000 $1,500 365,575 354,425 Cost of goods sold Gross pront Selling and administrative expenses Selling expenses Administrative senses Total selling and administrative experts Onorati come 65,400 154,000 219,400 16.13 Check My Workmore Check My Work sering Operating income Other revenue and expense: Interest revenue 135,125 2,000 Interest expense -1,500 Income before income tax 500 Income tax 108,527 43,411 Net income 65,116 Final Questions Budgeting affects the planning, directing, and controlling functions of management. LeamCo wishes to determine the sensitivity of some of its budget values to changes in the economy Using the information on the completed budgets, answer the following questions, Consider each question separately, assuming that all other data remains the same, Including the level of production of each model 1. teamco believes that sales of the Deluxe Abacus model may decrease in 2012. Ir Deluxe abacus sales are zero, what will be the effect on Loanco's income before income tax? For simplicity, ignore any change in Cost of Goods Sold. a. Ir Leamco sells zero Deluxe Abacus units in 2012, it will break even (.e, the company will have zero income before income tax) d. LeamCo will have a net loss before income tax if it sells zero Deluxe Abacus units in 2012. c. Learn Co will still have positive income before income taxi sells zero Deluxe Abacus units in 2012 2. LearnCo's vendor for bead packages is expected to double its price per package of beads. If this occurs, what will be the effect on Learnco's income before income tax? a. If the price for bead packages doubles, Learnco will break even (le, the company will have zero income before income tax) Check My Work more Check My Wortes remaining Email instructor Save and Subm Assignment for Grading 3. Learco is aware that its labor prices for the Gluing part of the manufacturing process may increase to $15.00 per hour out to changes in minimum wage laws in its state. If this occurs, what will be the effect on LearnCo's Income before income tax? a. LearnCo will still have positive income before Income tax if Gluing tabor costs increase to $15.00 per hour b. It Gluing labor costs increase to $15.00 per hour, LearnCo wit break even (ie, the company will have zero income before income tax). c. LearnCo will have a loss before income tax it Gluing labor costs increase to $15.00 per hour. 4. Leamco's 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 Che My Wor 1. Consider the change in Deluxe abacus sales and its effect on the Sales Budget, then follow that change through the budget chain to the Budgeted Income Statement 2. Consider the change in the cost of bead packages and its effect on the Direct Materials Purchases Budget, then follow that change through the budget chain to the Budgeted Income Statement 3. Consider the change in the cost of gluing wages and its effect on the Direct Labor Cost budget, then follow that change through the budget chain to the Budgeted Income Statement 4. Consider the changes in selling and administrative expenses, and their effects on the Selling and Administrative Expenses Budget, then follow that change through the budget chain to the Budgeted Income Statement Check My Work more Check My Work uses remaining