Question

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, 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.

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, 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

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 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

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 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

Answer 1

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LearnCo
Sales volume of Basic	Amount $	Note
Sales value of Basic	252,000.00	A
Unit price	7.00	B
Expected sales units of Basic	36,000.00	C=A/B
Sales volume of Deluxe	Amount $
Total sales units	72,000.00
Less: Expected sales units of Basic	36,000.00	See C
Expected sales units of Deluxe	36,000.00	D
Sales price of Deluxe	Amount $
Sales value of Deluxe	468,000.00	E
Expected sales units of Deluxe	36,000.00	See D
Unit price	13.00	F=E/D
Production budget	Basic	Deluxe		Note
Expect sales units	36,000.00	36,000.00		G= See C, D
Add: Desired ending inventory	1,000.00	3,000.00
Total units available	37,000.00	39,000.00
Less: Estimated Beginning inventory	(1,050.00)	(2,100.00)
Total units to be produced	35,950.00	36,900.00		H
Direct Material Budget- Wood Pieces	Basic	Deluxe	Total
Production Budget	35,950.00	36,900.00		See H
Quantity required per unit	1.00	2.00		I
Material needed for production	35,950.00	73,800.00	109,750.00	J=H*E
Add: Desired ending inventory			2,200.00
Total packages available			111,950.00
Less: Estimated Beginning inventory			(3,500.00)
Total packages to be purchased			108,450.00	K
Unit price			0.20	L
Cost of Wood pieces to be purchased			21,690.00	M=K*L
Direct Material Budget- Beads	Basic	Deluxe	Total
Production Budget	35,950.00	36,900.00		G= See C, D
Quantity required per unit	2.00	3.00		N
Material needed for production	71,900.00	110,700.00	182,600.00	O=G*N
Add: Desired ending inventory			5,000.00
Total packages available			187,600.00
Less: Estimated Beginning inventory			(4,500.00)
Total packages to be purchased			183,100.00
Unit price			0.20	P
Cost of Beads to be purchased			36,620.00	Q=O*P
Total direct materials to be purchased			58,310.00	R=M+Q