Question

Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2020.

1.		Sales: quarter 1, 28,600 bags; quarter 2, 42,600 bags. Selling price is $62 per bag.
2.		Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.50 per pound.
3.		Desired inventory levels:

Type of Inventory		January 1		April 1		July 1
Snare (bags)		8,100		12,400		18,500
Gumm (pounds)		9,100		10,300		13,200
Tarr (pounds)		14,300		20,300		25,500

4.		Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.
5.		Selling and administrative expenses are expected to be 15% of sales plus $177,000 per quarter.
6.		Interest expense is $100,000.
7.		Income taxes are expected to be 30% of income before income taxes.

Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $299,000 in quarter 1 and $425,500 in quarter 2.

Answer 1

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1. Sales Budget:
	Q1	Q2	Total
Estimates Sales Units	28600	42600	71200
Estimated Selling Price	$                                               62	$                  62	$                              62
Estimated Sale	$                                 1,773,200	$   2,641,200	$                4,414,400
2. Production Budget:
	Q1	Q2	Total
Estimated Sale	28600	42600	71200
Add: Ending Inventory	12400	18500	18500
Units Required	41000	61100	89700
Less: Beginning Inventory	-8100	-12400	-8100
Production needed	32900	48700	81600
3. Material Budget: Gumm
	Q1	Q2	Total
Production Needed	32900	48700	81600
Per unit of FG needed "GUMM"	4	4	4
Total Raw Material needed	131600	194800	326400
Add: Ending Inventory	10300	13200	13200
Units Required	141900	208000	339600
Less: Beginning Inventory	-9100	-10300	-9100
Estimated Purchase of GUMM	132800	197700	330500
Cost of Purchase per unit	$                                              3.8	$                3.8	$                             3.8
Total Purchase Cost	$                                    504,640	$       751,260	$                1,255,900
4. Material Budget: TARR
	Q1	Q2	Total
Production Needed	32900	48700	81600
Per unit of FG needed "TARR"	6	6	6
Total Raw Material needed	197400	292200	489600
Add: Ending Inventory	20300	2550	2550
Units Required	217700	294750	492150
Less: Beginning Inventory	-14300	-20300	-14300
Estimated Purchase of TARR	203400	274450	477850
Cost of Purchase per unit	$                                              1.5	$                1.5	$                             1.5
Total Purchase Cost	$                                    305,100	$       411,675	$                   716,775
5. Direct Labor Budget
	Q1	Q2	Total
Production Needed	32900	48700	81600
Per unit of FG needed Hours	0.25	0.25	0.25
Total Labor Hours Needed	8225	12175	20400
Labor Rate per Hour	$                                               16	$                  16	$                              16
Total Direct Labor Budget	$                                    131,600	$       194,800	$                   326,400
6. Budgeted Income Statement:
Sale			$                4,414,400
Less: Cost of Goods Sold	71200*33.2
			$                2,363,840
Gross Margin			$                2,050,560
Less: Selling and Administration Expenses	(177000*2)+(4414400*15%)		$                1,016,160
Net Operating Income			$                1,034,400
Less: Interest Expense			$                   100,000
Income Before tax			$                   934,400
Less: Tax 30%			$                   280,320
Net Income			$                   654,080
Cost of Goods Sold:	Alpha
	Quantity/Hours	Per Q/Hour	Total Cost per unit
Material "GUMM"	4	$              3.80	$                        15.20
Material "TARR"	6	$              1.50	$                          9.00
Labour	0.25	$            16.00	$                          4.00
Overheads 125% of Labor Cost			$                          5.00
Total Cost Per Unit			$                        33.20