Question

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. You have been asked to assist the controller of LearnCo in preparing the 20Y2 budgets.

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, 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, 20Y2
Product	Unit Sales Volume	Unit Selling Price	Total Sales
Basic Abacus		$7	$252,000
Deluxe Abacus			468,000
Totals	72,000		$720,000

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 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)
Desired ending inventory, December 31, 20Y2	1,000	3,000
Total units available
Estimated beginning inventory, January 1, 20Y2	(1,050)	(2,100)
Total units to be produced

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	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
Deluxe abacus

LearnCo Direct Materials Purchases Budget For the Year Ending December 31, 20Y2
	Direct Materials
	Wood Pieces	Beads	Total
Packages required for production:
Basic abacus
Deluxe abacus
Desired inventory, December 31, 20Y2	2,200	5,000
Total packages available
Estimated inventory, January 1, 20Y2	(3,500)	(4,500)
Total packages to be purchased
Unit price (per package)	× $	× $
Total direct materials to be purchased	$	$	$58,310

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	$17
Units to be produced (from Production Budget):
Basic abacus
Deluxe abacus

LearnCo Direct Labor Cost Budget For the Year Ending December 31, 20Y2
	Gluing	Assembly	Total
Hours required for production:
Basic abacus
Deluxe abacus
Total
Hourly rate	× $	x $
Total direct labor cost	$	$	$281,280

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

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
Cost of direct materials available for use	$
Direct materials inventory, December 31, 20Y2	(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, 20Y2		(1,250)
Cost of goods manufactured
Cost of finished goods available for sale			$
Finished goods inventory, December 31, 20Y2			(1,500)
Cost of goods sold			$

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

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
LearnCo’s income tax rate	40%

LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2
Revenue from sales		$
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		$
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.

Answer 1

Budgeted income statement for the year ending 31st dec 20Y2

PArticulars	Amount	Amount
Revenue from sales		720000
Cost of goods sold		(366980)
Gross profit		353920
Selling and administrative expenses
Total selling expenses	65400
Total administrative expenses	154000
Total selling and distribution expenses		(219400)
Operating income
Interest revenue	2000
less: interest expense	(1500)
Other income / (expenses)		500
Profit before tax		134120
Income tax		(53648)
Net profit after tax		80472

CAlculation of cost of goods sold