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. 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 you prepared. When required, round your answers to the nearest dollar.

Direct Labor Data Table
	Gluing	Assembly
Hours required per unit:
Basic abacus	0.10	0.10
Deluxe abacus	0.10	0.20
Labor hourly rate:
Gluing	$13
Assembly	$18
Units to be produced (from Production Budget):
Basic abacus	fill in the blank 079d3ff90fd1020_1
Deluxe abacus	fill in the blank 079d3ff90fd1020_2

LearnCo Direct Labor Cost Budget For the Year Ending December 31, 20Y2
	Gluing	Assembly	Total
Hours required for production:
Basic abacus	fill in the blank 079d3ff90fd1020_3	fill in the blank 079d3ff90fd1020_4
Deluxe abacus	fill in the blank 079d3ff90fd1020_5	fill in the blank 079d3ff90fd1020_6
Total	fill in the blank 079d3ff90fd1020_7	fill in the blank 079d3ff90fd1020_8
Hourly rate	$fill in the blank 079d3ff90fd1020_9	$fill in the blank 079d3ff90fd1020_10
Total direct labor cost	$fill in the blank 079d3ff90fd1020_11	$fill in the blank 079d3ff90fd1020_12	$292,255

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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	fill in the blank c3985204905d066_1
Depreciation of plant and equipment	1,450
Total factory overhead cost	$18,100

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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.

LearnCo Cost of Goods Sold Budget For the Year Ending December 31, 20Y2
Finished goods inventory, January 1, 20Y2			$9,870
Work in process inventory, January 1, 20Y2		$2,010
Direct materials:
Direct materials inventory, January 1, 20Y2	$1,600
Direct materials purchases	fill in the blank eb6229f8bfeffa0_1
Cost of direct materials available for use	$fill in the blank eb6229f8bfeffa0_2
Direct materials inventory, December 31, 20Y2	(1,440)
Cost of direct materials placed in production	$fill in the blank eb6229f8bfeffa0_3
Direct labor	fill in the blank eb6229f8bfeffa0_4
Factory overhead	fill in the blank eb6229f8bfeffa0_5
Total manufacturing costs		fill in the blank eb6229f8bfeffa0_6
Total work in process during period		$fill in the blank eb6229f8bfeffa0_7
Work in process inventory, December 31, 20Y2		(1,250)
Cost of goods manufactured			fill in the blank eb6229f8bfeffa0_8
Cost of finished goods available for sale			$fill in the blank eb6229f8bfeffa0_9
Finished goods inventory, December 31, 20Y2			(1,500)
Cost of goods sold			$fill in the blank eb6229f8bfeffa0_10

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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 prepared its selling and administrative expenses budget as follows. This 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, 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
LearnCos income tax rate	40%

LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2
Revenue from sales		$fill in the blank 2dabcb05ff98fc0_1
Cost of goods sold		fill in the blank 2dabcb05ff98fc0_2
Gross profit		$fill in the blank 2dabcb05ff98fc0_3
Selling and administrative expenses:
Selling expenses	$fill in the blank 2dabcb05ff98fc0_4
Administrative expenses	fill in the blank 2dabcb05ff98fc0_5
Total selling and administrative expenses		fill in the blank 2dabcb05ff98fc0_6
Operating income		$fill in the blank 2dabcb05ff98fc0_7
Other revenue and expense:
Interest revenue	$fill in the blank 2dabcb05ff98fc0_8
Interest expense	fill in the blank 2dabcb05ff98fc0_9	fill in the blank 2dabcb05ff98fc0_10
Income before income tax		$fill in the blank 2dabcb05ff98fc0_11
Income tax		fill in the blank 2dabcb05ff98fc0_12
Net income		$fill in the blank 2dabcb05ff98fc0_13

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Final Questions

Budgeting affects the planning, directing, and controlling functions of management. LearnCo 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. LearnCo believes that sales of the Deluxe Abacus model may decrease in 20Y2. If Deluxe abacus sales are zero, what will be the effect on LearnCos income before income tax? For simplicity, ignore any change in Cost of Goods Sold.

a. If LearnCo sells zero Deluxe Abacus units in 20Y2, it will break even (i.e., the company will have zero income before income tax).

b. LearnCo will have a net loss before income tax if it sells zero Deluxe Abacus units in 20Y2.

c. LearnCo will still have positive income before income tax if it sells zero Deluxe Abacus units in 20Y2.

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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 LearnCos income before income tax?

a. If the price for bead packages doubles, LearnCo will break even (i.e., the company will have zero income before income tax).

b. LearnCo will have a loss before income tax if the price for bead packages doubles.

c. LearnCo will still have positive income before income tax if the price for bead packages doubles.

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3. LearnCo is aware that its labor prices for the Gluing part of the manufacturing process may increase to $15.00 per hour due to changes in minimum wage laws in its state. If this occurs, what will be the effect on LearnCos income before income tax?

a. LearnCo will still have positive income before income tax if Gluing labor costs increase to $15.00 per hour.

b. If Gluing labor costs increase to $15.00 per hour, LearnCo will break even (i.e., the company will have zero income before income tax).

c. LearnCo will have a loss before income tax if Gluing labor costs increase to $15.00 per hour.

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4. LearnCos 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.

$fill in the blank 37f10f081fc804b_4