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 is interested in budgeting for selling and administrative costs, and in creating a budgeted Income statement showing a prediction of net income for 202. You have been asked to assist the controller of Leamco 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 revised for various factors such as planned advertising and promotion, projected pricing changes, and expected industry and general economic conditions. LeamCo has completed reviewing its 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 Sales Unit Selling Volume Price Sales Basic Abacus 17 $252,000 Deluxe Abacus 468,000 Total Product 16,000, 36,000 13 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. You note that LearnCo nas omitted six numbers from the following 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, 2012 Units Basic Expected units to be sold (from Sales Budget) 36,000 36,000 Desired ending Inventory, December 31, 2012 3,000 Total units available 39,000 Estimated beginning inventory, January 1, 2012 (1,050) (2,100) Total units to be produced 35,950 36,900 Units Deluxe 1,000 37,000 Fedback 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 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 Wood Pieces Beads Packages required per unit: Basic abacus 1 2 Deluxe abacus 2 3 Cost per package: Wood pleces $0.20 Beads $0.20 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 Packages required for production: Basic abacus 35,950 71,900 Deluxe abacus 73,800 110,700 Desired Inventory, December 31, 2012 2,200 5,000 Total packages available 111,950 187,600 Estimated Inventory, January 1, 2012 (3,500) (4,500) Total packages to be purchased 108,450 183,100 Total Unit price (per package) 0 X X 0 0 X X $ 0 x Unit price (per package) Total direct materials to be purchased 27,113 X 45,775 X $58,310 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 LearnCo has omitted quite a few numbers from the budget. Fun 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 Deluxe abacus Labor hourly rate: Gluing Assembly Units to be produced (from Production Budget): 0.10 0.10 0.20 0.10 513 $19 Basic abocus 35,950 Deluxe abacus 36,900 36,900 LearnCo Direct Labor Cost Budget For the Year Ending December 31, 2012 Gluing Assembly Hours required for production: Basic abacus 3,595 3,595 Total Deluxe abacus 3,690 7,380 Total 7,285 Hourly rate 12 X x $ 10,975 17 x 186,575 X $303,230 Total direct labor cost 87,420 x Footback 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, Learco has not separated costs in this manner Alter reviewing the following factory overhead cont budget, you note that Learnco has completed the budget with the exception of one amount, fi in the missing amount Learnco Factory Overhead Cost Budget For the Year Ending December 31, 20Y2 Indirect factory wages Power and light 55,400 11,2507 $5,400 11,250 Indirect factory wages Power and light Depreciation of plant and equipment Total factory overhead cost 1,450 $18,100 Cost of Goods Sold Budget The cost of goods told 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 Leamco, using information that follows provided by the controller, and using the previous budgets you have prepared $9,670 $2,010 LearnCo Cost of Goods Sold Budget For the Year Ending December 31, 20Y2 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 72,888 X Cost of direct materials available for use Direct materials inventory, December 31, 2012 (1,440) Cost of direct materials placed in production Direct labor 72,888 X (1,440) Direct materials purchases Cost of direct materials available for use Direct materials inventory, December 31, 2012 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, 20Y2 Cost of goods manufactured Cost of finished goods avallable for sale Finished goods inventory, December 31, 2012 Cost of goods sold (1,250) (1,500) Each 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. Learco has prepared its selling and administrative expenses budget as follows. Thit budget is merely reviewed by you for use on the budgeted income statement LearnCo Selling and Administrative Expenses Budget For the Year Ending December 31, 2012 Selling expenses: DEMICO 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 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 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 $1,500 Learn Co's income tax rate 40% DOSTU LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2 Revenue from sales 720,000 -374,313 X 345,688 X -58,860 x - 130,900 X Cost of goods sold Gross profit 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 156,428 X Income tax -62,571 X Net income 93,857 X Feedback