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, 29,200 bags; quarter 2, 43,200 bags. Selling price is $ 61 per bag. 2. Direct materials: each bag of Snare requires 5 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) 8,400 12,200 18,200 Gumm (pounds) 9,200 10,200 13,500 Tarr (pounds) 14,300 20,400 25,400 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 $ 180,000 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 $ 301,000 in quarter 1 and $ 425,500 in quarter 2. (Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

COOK FARM SUPPLY COMPANY Direct Materials Budget—Gumm

COOK FARM SUPPLY COMPANY Direct Labor Budget

COOK FARM SUPPLY COMPANY Selling and Administrative Expense Budget

Budgeted Income Statement

Answer 1

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Material Budget: Gumm
	Q1	Q2	Total
Production Needed	33000	49200	82200
Per unit of FG needed "GUMM"	5	5	5
Total Raw Material needed	165000	246000	411000
Add: Ending Inventory	10200	13500	13500
Units Required	175200	259500	424500
Less: Beginning Inventory	-9200	-10200	-9200
Estimated Purchase of GUMM	166000	249300	415300
Cost of Purchase per unit	$                                              3.8	$                3.8	$                             3.8
Total Purchase Cost	$                                    630,800	$       947,340	$                1,578,140
Direct Labor Budget
	Q1	Q2	Total
Production Needed	33000	49200	82200
Per unit of FG needed Hours	0.25	0.25	0.25
Total Labor Hours Needed	8250	12300	20550
Labor Rate per Hour	$                                               16	$                  16	$                              16
Total Direct Labor Budget	$                                    132,000	$       196,800	$                   328,800
Selling and Adminstrative Budget
	Q1	Q2	Total
Variable Selling and admin	$                                    267,180	$       395,280	$                   662,460
Fixed	$                                    180,000	$       180,000	$                   360,000
Total Selling and Admin Budget	$                                    447,180	$       575,280	$                1,022,460

Budgeted Income Statement:
Sale			$                4,416,400
Less: Cost of Goods Sold	72400*37
			$                2,678,800
Gross Margin			$                1,737,600
Less: Selling and Administration Expenses			$                1,022,460
Net Operating Income			$                   715,140
Less: Interest Expense			$                   100,000
Income Before tax			$                   615,140
Less: Tax 30%			$                   184,542
Net Income			$                   430,598
Cost of Goods Sold:	Alpha
	Quantity/Hours	Per Q/Hour	Total Cost per unit
Material "GUMM"	5	$              3.80	$                        19.00
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			$                        37.00