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 2017. 1. Sales: quarter 1, 29,400 bags; quarter 2, 44,000 bags. Selling price is $61 per bag. 2. Direct materials: each bag of Snare requires 5 pounds of Gumm at a cost of $3.8 per pound and 6 pounds of Tarr at $1.75 per pound. 3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) 8,500 12,300 18,500 Gumm (pounds) 9,400 10,200 13,100 Tarr (pounds) 14,400 20,500 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 $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 $299,000 in quarter 1 and $426,500 in quarter 2. Prepare the sales budget. Prepare the production budget. Prepare the direct materials budget. Prepare the direct labor budget. Prepare the selling and administrative expense budget. Prepare the budgeted multiple-step income statement for the first 6 months.

Answer 1

Statement Showing Sales Budget
	Quarter-1	Quarter-2	Total
Sales ( in bags))	29400	44000	73400
Sales ($/Unit)	$61	$61	$61.00
Sales Revenue	$1,793,400	$2,684,000	$4,477,400.00
Statement Showing Production Budget
	Quarter-1	Quarter-2	Total
Sales	29400	44000	73400
Desired Ending inventory	12300	18500	30800
Total Unit Needed	41700	62500	104200
Less: Beg. Inventory	-8500	-12300	-20800
Production required	33200	50200	83400
Statement Showing Direct Labour Budget
	Quarter-1	Quarter-2	Total
Prod Req.	33200	50200
Direct Labour /bag	15 Minute	15 Minute
Direct Labour for Production ( in Minute)	498000	753000	1251000
Direct Labour for Production ( in Hour)	8300	12550	20850
Direct Labour Rate	$16	$16	$16
Total Direct Labour Cost	$132,800	$200,800	$333,600
Statement Showing Raw material Budget- Gumm
	Quarter-1	Quarter-2	Total
Production Required (in bag)	33200	50200	83400
Raw Material in Pound/Bag	5	5	5
RM for Production	166000	251000	417000
Desired Ending inventory	10200	13100	23300
Total Raw material needed	176200	264100	440300
Beg. RM Inventory	-9400	-10200	-19600
RM to be purchased	166800	253900	420700
Price/Pound	$3.80	$3.80	$3.80
Cost of Purchase	633840	964820	$1,598,660.00
W/Note: Computation of Manufacturing Cost/Unit
	Qtr-1	Qtr-2
Direct Material Cost: Gumm (5 *$3.8)	$19.00	$19.00
Tarr (6*$1.75)	$10.50	$10.50
Direct Labour ($16/60*15)	$4.00	$4.00
Manufacturing Overhead (125%of Labour	$5.00	$5.00
Manufacturing Cost/Unit	$38.50	$38.50
Budgeted Income Statement
Sales Revenue from Sales Budget	$4,477,400.00
Less: Cost of Goods Sold
(73400 bag*$38.50)	$2,825,900.00
Gross Margin	$1,651,500.00
Less: Selling & Admin Expense	$851,610.00
Less: Interest Expense	100000
Income Before Tax	$699,890.00
Less: Income Tax Expense @30%	$209,967.00
Net Income	$489,923.00