Question 5

Mastery Problem: Budgeting

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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, 20Y1, and is planning for 20Y2, 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 20Y2.

Have been asked to assist the controller of LearnCo in preparing the 20Y2 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. LearnCo has completed reviewing its prior year's sales and has prepared the following sales budget.

After reviewing LearnCo's sales budget, 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, 20Y2
Product	Unit Sales Volume	Unit Selling Price	Total Sales
Basic Abacus	fill in the blank 27218b05b06303c_1	$8	$288,000
Deluxe Abacus	fill in the blank 27218b05b06303c_2	fill in the blank 27218b05b06303c_3	432,000
Totals	72,000		$720,000

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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.

Note that LearnCo has 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, 20Y2
	Units Basic	Units Deluxe
Expected units to be sold (from Sales Budget)	fill in the blank 702b8ff56057062_1	fill in the blank 702b8ff56057062_2
Desired ending inventory, December 31, 20Y2	1,000	3,000
Total units available	fill in the blank 702b8ff56057062_3	fill in the blank 702b8ff56057062_4
Estimated beginning inventory, January 1, 20Y2	(1,050)	(2,100)
Total units to be produced	fill in the blank 702b8ff56057062_5	fill in the blank 702b8ff56057062_6

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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 make any changes to the budget, 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), observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. May need to use numbers from the Direct Materials Data Table, or from the sales budget and production budget prepared. When required, round answers to the nearest dollar.

Direct Materials Data Table
	Wood Pieces	Beads
Packages required per unit:
Basic abacus	1	2
Deluxe abacus	2	3
Cost per package:
Wood pieces	$0.20
Beads	$0.20
Units to be produced (from Production Budget):
Basic abacus	fill in the blank 215b39f8304bfc9_1
Deluxe abacus	fill in the blank 215b39f8304bfc9_2

LearnCo Direct Materials Purchases Budget For the Year Ending December 31, 20Y2
	Direct Materials
	Wood Pieces	Beads	Total
Packages required for production:
Basic abacus	fill in the blank 215b39f8304bfc9_3	fill in the blank 215b39f8304bfc9_4
Deluxe abacus	fill in the blank 215b39f8304bfc9_5	fill in the blank 215b39f8304bfc9_6
Desired inventory, December 31, 20Y2	2,200	5,000
Total packages available	fill in the blank 215b39f8304bfc9_7	fill in the blank 215b39f8304bfc9_8
Estimated inventory, January 1, 20Y2	(3,500)	(4,500)
Total packages to be purchased	fill in the blank 215b39f8304bfc9_9	fill in the blank 215b39f8304bfc9_10
Unit price (per package)	$fill in the blank 215b39f8304bfc9_11	$fill in the blank 215b39f8304bfc9_12
Total direct materials to be purchased	$fill in the blank 215b39f8304bfc9_13	$fill in the blank 215b39f8304bfc9_14	$58,310

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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 make any changes to the budget, 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), observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. May need to use numbers from the Direct Labor Data Table, or from the sales budget, production budget, and direct materials purchases budget prepared. When required, round 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	$12
Assembly	$18
Units to be produced (from Production Budget):
Basic abacus	fill in the blank 619f83ff1fa5faa_1
Deluxe abacus	fill in the blank 619f83ff1fa5faa_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 619f83ff1fa5faa_3	fill in the blank 619f83ff1fa5faa_4
Deluxe abacus	fill in the blank 619f83ff1fa5faa_5	fill in the blank 619f83ff1fa5faa_6
Total	fill in the blank 619f83ff1fa5faa_7	fill in the blank 619f83ff1fa5faa_8
Hourly rate	$fill in the blank 619f83ff1fa5faa_9	$fill in the blank 619f83ff1fa5faa_10
Total direct labor cost	$fill in the blank 619f83ff1fa5faa_11	$fill in the blank 619f83ff1fa5faa_12	$284,970

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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 5bd9c9fb9fad011_1
Depreciation of plant and equipment	1,450
Total factory overhead cost	$18,100

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