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, 28,000 bags; quarter 2, 42,000 bags. Selling price is $61 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		12,100		18,100
Gumm (pounds)		9,100		10,100		13,100
Tarr (pounds)		14,100		20,100		25,100

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 $176,000 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 $298,000 in quarter 1 and $422,500 in quarter 2.

Prepare the sales budget.

Prepare the production budget.

Prepare the direct materials budget. (Round Cost per pound answers to 2 decimal places, e.g. 52.70.)

Prepare the direct labor budget. (Enter Direct labor time per unit in proportion to hours, e.g. for 45 minutes the proportion will be 0.75.)

Prepare the selling and administrative expense budget.

Prepare the budgeted multiple-step income statement for the first 6 months. (Round intermediate calculations to 2 decimal places and final answer to 0 decimal places, e.g. 1,255.)

Answer 1

		Sales budget
					Quarter 1	Quarter 2	Total
Sales in bags				a	28000	42000
Selling price				b	61	61
Sales in $				c=a*b	1708000	2562000	4270000
		Production budget
					Quarter 1	Quarter 2
Sales in bags					28000	42000
Add:Ending inventory of snare					12100	18100
Total bags required					40100	60100
Less: Beginning inventory of snare					8100	12100
Bags to be produced					32000	48000
		Direct materials budget-Gumm
					Quarter 1	Quarter 2
Bags to be produced				a	32000	48000
Gumm required per bag (in pounds)				b	4	4
Gumm reuired for production				c=a*b	128000	192000
Add:Ending inventory of Gumm					10100	13100
Total gumm required					138100	205100
Less: Beginning inventory of Gumm					9100	10100
Gumm to be purchased				d	129000	195000
Cost per pound				e	3.8	3.8
Total cost				d*e	490200	741000
		Direct labor budget
					Quarter 1	Quarter 2
Bags to be produced				a	32000	48000
Direct labor time per bag in hours			(15/60)	b	0.25	0.25
Total direct labor hours				c=a*b	8000	12000
Hourly rate				d	16	16
Direct labor cost				c*d	128000	192000
		Manufacturing overhead budget
					Quarter 1	Quarter 2
Direct labor cost				a	128000	192000
Manufacturing overhead				a*125%	160000	240000
		Selling and administrative expenses budget
					Quarter 1	Quarter 2	Total
Sales in $				a	1708000	2562000
Variable				b=a*15%	256200	384300
Fixed				c	176000	176000
Total				b+c	432200	560300	992500