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	fill in the blank 22bed404f00b03e_1	$7	$252,000
Deluxe Abacus	fill in the blank 22bed404f00b03e_2	fill in the blank 22bed404f00b03e_3	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)	fill in the blank 8d0b8df87005019_1	fill in the blank 8d0b8df87005019_2
Desired ending inventory, December 31, 20Y2	1,000	3,000
Total units available	fill in the blank 8d0b8df87005019_3	fill in the blank 8d0b8df87005019_4
Estimated beginning inventory, January 1, 20Y2	(1,050)	(2,100)
Total units to be produced	fill in the blank 8d0b8df87005019_5	fill in the blank 8d0b8df87005019_6

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	fill in the blank b312b4064fd7051_1
Deluxe abacus	fill in the blank b312b4064fd7051_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 b312b4064fd7051_3	fill in the blank b312b4064fd7051_4
Deluxe abacus	fill in the blank b312b4064fd7051_5	fill in the blank b312b4064fd7051_6
Desired inventory, December 31, 20Y2	2,200	5,000
Total packages available	fill in the blank b312b4064fd7051_7	fill in the blank b312b4064fd7051_8
Estimated inventory, January 1, 20Y2	(3,500)	(4,500)
Total packages to be purchased	fill in the blank b312b4064fd7051_9	fill in the blank b312b4064fd7051_10
Unit price (per package)	× $fill in the blank b312b4064fd7051_11	× $fill in the blank b312b4064fd7051_12
Total direct materials to be purchased	$fill in the blank b312b4064fd7051_13	$fill in the blank b312b4064fd7051_14	$58,310

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 42725bfca038fe3_1
Deluxe abacus	fill in the blank 42725bfca038fe3_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 42725bfca038fe3_3	fill in the blank 42725bfca038fe3_4
Deluxe abacus	fill in the blank 42725bfca038fe3_5	fill in the blank 42725bfca038fe3_6
Total	fill in the blank 42725bfca038fe3_7	fill in the blank 42725bfca038fe3_8
Hourly rate	× $fill in the blank 42725bfca038fe3_9	× $fill in the blank 42725bfca038fe3_10
Total direct labor cost	$fill in the blank 42725bfca038fe3_11	$fill in the blank 42725bfca038fe3_12	$292,255

Answer 1

LearnCo
Answer a	Units	Selling Price	Amount $
Basic	36,000.00	7.00	252,000.00
Deluxe	36,000.00	13.00	468,000.00
Sales Budget			720,000.00
Production budget	Basic	Deluxe
Expected sales units	36,000.00	36,000.00
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
Direct Material Budget- Wood Pieces	Basic	Deluxe	Total
Production Budget	35,950.00	36,900.00
Quantity required per unit	1.00	2.00
Material needed for production	35,950.00	73,800.00	109,750.00
Add: Desired ending inventory			2,200.00
Total material available			111,950.00
Less: Estimated Beginning inventory			(3,500.00)
Total material to be purchased			108,450.00
Unit price			0.20
Cost of Wood Pieces to be purchased			21,690.00
Direct Material Budget- Beads	Basic	Deluxe	Total
Production Budget	35,950.00	36,900.00
Quantity required per unit	2.00	3.00
Material needed for production	71,900.00	110,700.00	182,600.00
Add: Desired ending inventory			5,000.00
Total material available			187,600.00
Less: Estimated Beginning inventory			(4,500.00)
Total material to be purchased			183,100.00
Unit price			0.20
Cost of Beads to be purchased			36,620.00
Direct labor Budget- Gluing	Basic	Deluxe	Total
Production Budget	35,950.00	36,900.00
Labor hour per unit	0.10	0.10
Labor hour required	3,595.00	3,690.00
Cost per hour	13.00	13.00
Direct labor Cost-Gluing	46,735.00	47,970.00	94,705.00
Direct labor Budget- Assembly	Basic	Deluxe	Total
Production Budget	35,950.00	36,900.00
Labor hour per unit	0.10	0.20
Labor hour required	3,595.00	7,380.00
Cost per hour	18.00	18.00
Direct labor Cost- Assembly	64,710.00	132,840.00	197,550.00