Mastery Problem: Budgeting LearnCo 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, 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 interested in budgeting for selling and administrative costs, and in creating a budgeted income statemen showing a prediction of net income for 20Y2. You have been asked to assist the controller of LearnCo in preparing the 2012 budgets. Sales Budget The sales budget often uses the prior year's sales as a starting point, and then sales quantities are revis 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 prepared the following sales budget. After reviewing LearnCo's sales budget, you note that three numbers have been omitted. The company 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 Sales Unit Selling Product Volume $288.000 36.000 432,000 Total Sales Price Basic Abacus 36,000 $8 Deluxe Abacus 12 Totals 72000 $720,000 Feedback Check My Work Production Budget the production budget should be integrated with the sales budget to ensure that production and sal ept in balance during the year. The production budget estimates the number of units to be manufac meet budgeted sales and desired inventory levels. Unele 3600 Lewe Production dont For the Year Ending December 31, 2012 Untlasi Expected units to be sold budget 36.000 Derending ve December 31, 2012 1000 Totalt 37,000 Estimated beginning inventory January 1, 2012 (1050 Total unite to be produced 35 950 10000 21000 36.900 Feedback Check My Work 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 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 Deluxe abacus 1 2 2 3 Cost per package $0.20 10 20 Wood pieces Beads 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 Material Wood Pieces Total Bende Packages reund for production Basicaba 35,950 35,950 X 30,000 X 36,900 X 1000 2.200 111,950 Deshacun Desired intory December 2012 Total packages vole Estimated Inventor January 1, 2012 Total packages to be purchased Unitrice (per package) Total direct materials to be purchased 2,500) 100,450 187,600 4.500 183,100 0.20 0.20 . 21,690 X 36,620 X $5,310 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. 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 Dat Table and enter the units to be produced from the Production Budget. After scanning the Direct Labor Co Budget (which follows 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 yo prepared. When required, round your answers to the nearest dollar. Direct Labor Data Table Gluing Assembly 0.10 0.10 0.10 0.20 Hours required per unit Basic abacus Deluxe abacus Labor hourly rate: Gluing Assembly Units to be produced from Production Budget) $13 519 Basic abacus Gluing Assembly Hours required per unit Basic abacus 0.10 0.10 Deluxe abacus 0.10 0.20 Labor hourly rate Ghing 313 Assembly 819 Units to be produced (from Production Budget) Basic abacus Deluxe abacus Leamco Direct Labor Cost Budget For the Year Ending December 31, 2012 Gluing Assembly Hours required for production Basie abacus Deluxe abacus > Total Total Hourly rate Total direct labor com 8303,230 Feedback Check My Work 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, 2012 Indirect factory wages 35,400 Power and light Depreciation of plant and equipment 1.450 Total factory overhead cost $18.100 Feedback Check My Work 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. Complete the preparation of the cost of goods sold budget for LearnCo, using information that follows provided by the controller, and using the previous budgets you have prepared. Learn.co Cost of Goods Sold Budget For the Year Ending December 31, 2012 > Finished goods inventory, January 1, 2012 $9,870 Work in process inventory, January 1, 2012 $2010 Direct materials Direct materials inventory, January 1, 2012 $1,600 Direct materials purchases Cost of direct materials available for use Direct materials inventory, December 31, 2012 (1.440) Cost of direct materials placed in production Direct labor Factory overhead Total manufacturing costs Total work in process during period Work in process inventory, December 31, 2012 (1.250) Cost of goods manufactured Cost of finished goods available for sale Finished goods inventory, December 31, 2012 (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 prepa its selling and administrative expenses budget as follows. This budget is merely reviewed by you for u- on the budgeted income statement Learnce 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 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 bu and selling and administrative expenses budget. Additional information that may be helpful in prep the budgeted income statement are on the following Budgeted Income Statement Data Table. Review the Budgeted Income Statement Data Table, then complete the budgeted income statemer 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 $1,500 LearnCo's income tax rate 40% For the Year Ending December 31, 2012 Revenue from sales Cost of goods sold Gross profil Selling and administrative expenses Selling expenses Administrative expenses Total selling and administrative expenses Operating income Other revenue and expense Interest revenue Interest expense Income before income tax DULU Income tax Net income 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