Mastery Problem: Budgeting LearnCo Learn Co 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 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 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. Learnco has completed reviewing ts prior year's sales and has prepared the following sales budget After reviewing Loanco'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 Learn Co Sales Budget For the Year Ending December 31, 20Y2 Unit Selling Volume Basic Abacus 36,000 $216,000 504,000 Unit Sales Total Sales Product Price 56 Deluxe Abacus 35,000 14 Totals 72,000 $720,000 Check My Work more Check My Work uses 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 Learco has omitted six numbers from the following production budget and it 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 Che Want Be sure to include the expected units to be sold for each model from the Sales Budget. Then review the preparation of the production budget 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 year. 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 ormaning Production Budget. After scanning the direct materials purchases budget (which follows the Direct Materials Data Table), you observe that Learno 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 Places 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 acabacus 35,050 71,000 Deluxe bacus 73,500 110,700 Desired inventory, December 31 5,000 2012 2,200 Cred My Worm Check w Warsemang Email Samandar Submit Assignment for Grading 111,950 187,600 (4,500) 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) 108,450 183,100 0.20 X 0.20 21,690 36,620 $58,310 Feedback Cho 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 tabor 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 Learno hat 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 Hours required per unit: Basic abacus 0.10 Deluxe abacus Labout 0.10 0.10 0.20 Check My Work more Check My Works remaining Email Instructor Save and it 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, 20Y2 Gluing Assembly Hours required for production: Total Basic abacus 3,595 3,595 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 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 Overhead $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 Direct materials inventory, December 31, 2012 (1.440) Cost of direct materials placed in production 73,038 Direct labor 292,255 Factory overhead 18,100 383,443 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 385,453 (1,250) 384,203 394,073 (1.500) 392,573 Selling/Admin. Expenses Budget Check My Workmore 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 lat 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 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, 20Y2 Indirect factory wages $5,400 Power and light 11,250 Depreciation of plant and equipment 1,450 Total factory overhead cost $18,100 Crack My Wor 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 budget 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, 2072 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 LearnCo 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 Administrative expenses Officers' salaries expense $85,000 Office salaries expense 35,000 Office rent expense 26,000 office supplies expense 6,400 $65,400 Check My Work 3 more Check My Work uses remaining Emotto suppesexperte 60 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 Tobie Review 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 404 Learco Budgeted Income Statement For the Year Ending December 31, 2012 Revenue from sales 720,000 Cost of goods sold 365,575 Gross profit 354,425 Selling and administrative expenses Selling expenses 65,400 Administrative expenses Total selling and administrative expenses 219,400 One come 11.15 $1,500 154,000 Check My Work more Check My Works remaining Operating income Other revenue and expense: 135,125 Interest revenue 2,000 Interest expense -1,500 500 Income before income tax 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 cach 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. If LearnCo sells zero Deluxe Abacus units in 2012, it will break even (le, the company will have zero income before income tax). d. LeamCo will have a net loss before income tax i itsells 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. Leamco'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. Ir 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 Worx se remaining Emal instructor Save and Subm Assignment for Grading 3. Learnco 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 it Gluing labor costs increase to $15.00 per hour, b. It Gluing labor costs increase to $15.00 per hour, LearnCo will break even 0.e, the company will have zero income before income tax) ClearCo will have a loss before income tax it Gluing labor costs increase to $15.00 per hour. 4. Learnco'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 fludget, 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 Workmore Check My Work has remaining