LearnCo manufactures and sells one product, an abacus for classroom use, with tw

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.

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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.

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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.

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The direct materials purchases budget should be integrated with the production budget to ensure that production is not interrupted during the year. This budget estimates the quantities of direct materials to be purchased to support budgeted production, along with desired inventory levels of direct materials.

Before you make any changes to the budget, you review the information in the following Direct Materials Data Table and enter the units to be produced from the Production Budget panel. 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.

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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 in the following Direct Labor Data Table and enter the units to be produced from the Production Budget panel. 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.

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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.

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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.

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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 in the budgeted income statement.

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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 in 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. Enter all amounts as positive numbers.

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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 budget panels, 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 LearnCo’s income before income tax? For simplicity, ignore any change in Cost of Goods Sold.

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 LearnCo’s income before income tax?

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 LearnCo’s income before income tax?

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.

I have started it on my own, but just making sure im headed in the right direction.

LearnCo Sales Budget For the Year Ending December 31, 20Y2 Product Total Sales $216,000 504,000 $720,000 Unit Sales Volume Unit Selling Price Basic Abacus Deluxe Abacus Totals S6.00 72,000

Explanation / Answer

Sales Budget for the year 31 Dec 20Y2 Product Sales Volume (Units) Unit Selling Price Total Sales Basic Abacus 36000 $6 $216,000 ($216000/$6) Deluxe Abacus 36000 $14 $504,000 (Units Sold of Deluxe Abacus are as same as Basic Abacus ($504000/36000) Production Budget for the year 31 Dec 20Y2 Basic Abacus (Units) Deluxe Abacus (Units) Expected Sales 36000 36000 Add: Estimated Closing Inventory Dec 1 20Y2 1000 3000 Less: Estimated Opening Inventory Jan 1 20Y2 -1050 -2100 Total Units to be Produced 35950 36900 Direct Material Required Wood Pieces Basic Abacus (Units) Deluxe Abacus (Units) Total Units to be Produced 35950 36900 Wood Pieces Required 1 2 Total Wood Peices Required for Production 35950 73800 (35950*1) (36900*1) Beads Basic Abacus (Units) Deluxe Abacus (Units) Total Units to be Produced 35950 36900 Beads Required 2 3 Total Beads Required for Production 71900 110700 (35950*2) (36900*3) Direct Material Purchased Wood Pieces Beads Total Material Required for Production 109750 182600 (35950+73800) (71900+110700) Add: Estimated Closing Inventory Dec 1 20Y2 2200 5000 Less: Estimated Opening Inventory Jan 1 20Y2 -3500 -4500 Raw Material to be Purchased 108450 183100 * Purchase Price $0.25 $0.25 Purchase Price 27112.5 45775 (108450*0.25) (183100*0.25) Total Purchase Price 72887.5 (27113+45775) Direct Labor Required Gluing Basic Abacus (Units) Deluxe Abacus (Units) Total Units to be Produced 35950 36900 Gluing : Hrs Required 0.1 0.1 Total Hours Required for Gluing 3595 3690 (35950*0.10 (36900*0.1) Total Hours Required for Gluing 7285 (3595+3690) Hourly Rate $12 Labor Cost for Gluing $87,420 Assembly Basic Abacus (Units) Deluxe Abacus (Units) Total Units to be Produced 35950 36900 Assembly: Hrs Required 0.1 0.2 Total Hours Required for Assembly 3595 7380 (35950*0.10 (36900*0.2) Total Hours Required for Assembly 10975 (3595+7680) Hourly Rate $17 Labor Cost for Assembly $186,575 (10975*17) Total labour Cost $273,995 ($87420+$272995) Overheads Indirect Factory Wages $5,400 Power & Light (b/f) $11,250 (18100-5400-1450) Deprecation on Plant & Machinery $1,450 Total Overhead Cost $18,100 Variable Power & Light $11,250 Divide by production Units 72850 (35950+36900) Cost per Unit $0.15 Cost Of Goods Sold Finished Goods Inventory Jan 1 20Y2 $9,870 WIP Inventory Jan 1 20Y2 $2,010 Direct Material Direct Material Inventory Jan 1 20Y2 $2,000 Add: Direct Material Purchased 72887.5 Cost Of Material Available for use $74,888 Less: Direct Material Inventory Dec 31 20Y2 $1,800 Cost of Material Consumed $73,088 Direct Labor $273,995 Factory Overheads $18,100 Total Manufacturing Cost $365,183 Total WIP during the period $367,193 WIP Inventory Dec 31 20Y2 ($1,250) Cost of Goods Manufactured $365,943 Cost of Finished Goods Available for sale $375,813 Less: Finished Goods Inventory Dec 31 20Y2 ($1,500) Cost of Goods Sold $374,313 Budgeted Income Statement For the year Ending 31 Dec 20Y2 1.Revenue from Sales $720,000 2.Cost of Goods Sold $374,313 3.Gross Profit $345,688 4.Selling & Administrative Expenses: 5.Selling Expenses $65,400 6.Administrative Expenses $154,000 7.Total Selling & Administrative Expenses $219,400 8.Income from Operations $126,288 9.other Revenue & Expenses 10.Interest Revenue $2,000 11.Interest Expenses ($1,500) $500 12.Income before Income tax $125,788 13.Income Tax @40% $50,315.0 14.Net Income $75,472.5 Answers 1) It will have postive Income before income tax if the sales of deluxe abacus is zero units In 20Y2 Because its already gaining profits so there is no question of loss or Break even 2) if the price of beads increase the Lean co have loss before tax as the price of material increases 3) if the price of Labor increase the Lean co have loss before tax as the price of labor increases 4) Revised Budgeted Income Statement For the year Ending 31 Dec 20Y2 1.Revenue from Sales 720000 2.Cost of Goods Sold 374312.5 3.Gross Profit 345687.5 4.Selling & Administrative Expenses: 5.Selling Expenses Reduced by 10% 58860 6.Administrative Expenses 130900 7.Total Selling & Administrative Expenses 189760 8.Income from Operations 155927.5 9.other Revenue & Expenses 10.Interest Revenue 2000 11.Interest Expenses -1500 500 12.Income before Income tax 156427.5 13.Income Tax @40% 62571 14.Net Income 93856.5

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