Overview Casper Sleep Inc. is a multi-channel Sleep Company offering a portfolio of obsessively engineered sleep products, including mattresses, pillows, bedding, and furniture, through our e-commerce platform, Casper-owned and operated Sleep Shops across North America and a growing list of best-in-class retail partners. We believe sleep is rapidly becoming the third pillar of wellness and is poised to undergo the same massive transformation that fitness and nutrition have as they became major consumer categories. People spend more time sleeping than on any other single activity throughout their lives. When we sleep better, we experience better hours awake, making us more productive, creative, happy, and healthy. Our Growth Strategy While we are proud of our accomplishments to date, we believe the most exciting opportunities for Casper's growth story lie ahead and we intend to pursue the following strategies to help us achieve this growth. Increase Brand Awareness and Equity to Acquire New Customers and Build Enduring Brand Love. Increasing brand awareness and growing favorable brand equity among consumers in both existing and new markets has been, and remains, central to our growth. We drive brand awareness through a combination of sophisticated, multi-layered marketing programs, word-of-mouth referrals, experiential brand events, retail expansion, and ongoing product usage. A core tenet of our brand growth strategy is offering consumers increased ways to engage with our products and services, both online and offline, by building relevant and personalized multi-channel shopping experiences. We remain focused on building favorable brand equity through providing exceptional customer experiences, prioritizing customer research and data in order to develop a deep understanding of our customers' needs, and putting the customer first in all of our decisions in order to deliver a joyful shopping and post-purchase experience. Expand Direct-to-Consumer Presence and Network of Retail Partnerships. As of December 31, 2020, we operated 67 retail stores, up from 60 stores at the end of 2019. We plan to continue the rollout of new Casper retail stores to strengthen our footprint in existing cities, while selectively entering into new cities in the United States, Canada. We continually focus on broadening the appeal of our digital consumer experience by leveraging data and analytics to optimize product discovery and education, product assortment, and pricing, as well as the delivery and post delivery experience. In addition, as of December 31, 2020, we worked with over 20 retail partners. We tailor our approach to each retail partner with a variety of options, including unique floor positioning, visual merchandising, inventory availability, flexible packaging options, training, and marketing support while maintaining consistent brand, pricing, and product SKU offerings across our business. The growth of our offline presence through our retail stores and retail partnerships elevates the reach of our digital consumer experience. We believe our multi-channel expansion creates synergies Continue Leadership as a Sleep Destination. We plan to continue to offer products and services that span and work together across the entire Sleep Arc. We believe this expansion will attract new customer segments and retail partners, as well as enhance average order value, increase attachment rate opportunities, and deliver higher overall customer Services, our med me, by ng relevant du personalize T-Channes Shoppmy experiences. We rendu focused on building favorable brand equity through providing exceptional customer experiences, prioritizing customer research and data in order to develop a deep understanding of our customers' needs, and putting the customer first in all of our decisions in order to deliver a joyful shopping and post-purchase experience. Expand Direct-to-Consumer Presence and Network of Retail Partnerships. As of December 31, 2020, we operated 67 retail stores, up from 60 stores at the end of 2019. We plan to continue the rollout of new Casper retail stores to strengthen our footprint in existing cities, while selectively entering into new cities in the United States, Canada. We continually focus on broadening the appeal of our digital consumer experience by leveraging data and analytics to optimize product discovery and education, product assortment, and pricing, as well as the delivery and post-delivery experience. In addition, as of December 31, 2020, we worked with over 20 retail partners. We tailor our approach to each retail partner with a variety of options, including unique floor positioning, visual merchandising, inventory availability, flexible packaging options, training, and marketing support while maintaining consistent brand, pricing, and product SKU offerings across our business. The growth of our offline presence through our retail stores and retail partnerships elevates the reach of our digital consumer experience. We believe our multi-channel expansion creates synergies .Continue Leadership as a Sleep Destination. We plan to continue to offer products and services that span and work together across the entire Sleep Arc. We believe this expansion will attract new customer segments and retail partners, as well as enhance average order value, increase attachment rate opportunities, and deliver higher overall customer lifetime value. Casper Labs sits at the center of our ability to continue bringing innovative and enhanced performance-driven products to market with both speed and excellence. We anticipate that growth of our products and services will span entirely new categories of the Sleep Arc, including new sleep technologies that address the environmental factors of light, sound, touch, and scent; new services and content such as digital apps, meditation, sleep programming and counseling, and new use cases for our products, including options for travel, children and babies, and pets. vgb Drive Continued Operational Excellence. We are committed to improving productivity and profitability through a number of operational initiatives designed to grow our revenue and expand our margins. To date, we have had significant success improving our gross margins, achieving 51.1% in gross margin for the year ended December 31, 2020, up from 49.0% for the year ended December 31, 2019. We believe there is opportunity for continued improvement in gross margins, marketing efficiencies, and operating leverage through these key initiatives: Optimize pricing. Reduce product returns. Optimize supply chain efficiencies and infrastructure, Drive marketing efficiencies; and Achieve operating leverage. Information from the December 31, 2020 10-K report for Casper Sleep Inc. is included on the next page. Suppose you are the managerial accountant at Casper Sleep Inc. and need to adjust these items in the budget. Which is the FIRST budget in the Master Budget that you would need to adjust? Would you increase or decrease the budget? The master budget order is shown on the last page. We will focus on the "Drive Continued Operational Excellence" strategy. 1. Optimize pricing. Assume this means raising the price of the mattresses. Budget Increase or decrease_ 2. Reduce product returns. Budget Increase or decrease_ 3. Optimize supply chain efficiencies. Assume this means material cost. Budget Increase or decrease 4. Drive marketing efficiencies. Budget Increase or decrease_ 5. Achieve operating leverage. Assume this means reducing fixed costs while 5. Achieve operating leverage. Assume this means reducing fixed costs while increasing variable costs in production. We would need to adjust all three production budgets. Just indicate which will be increased and decreased. Budget direct materials budget Increase or decrease Budget direct labor budget Increase or decrease Budget manufacturing overhead budget Increase or decrease_