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, 29,800 bags; quarter 2, 43,800 bags. Selling price is $63 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 $1.75 per pound.
3.		Desired inventory levels:

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

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 $298,000 in quarter 1 and $423,500 in quarter 2.

(Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

Prepare the sales budget.

Prepare the production budget.

Prepare the direct materials budget

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.

Answer 1

COOK FARM SUPPLY COMPANY Sales Budget For the Six Months Ending June 30, 2017 Quarter Six 2 Months 29,800 43,800 73,600 1 Expected unit sales Unit selling price Total sales 63 1,877,400 2,759,400 4,636,800 Six Production Budget For the Six Months Ending June 30, 2017 Quarter 2 Months Expected unit sales 29,800 43,800 Add: Desired ending finished goods units 12,100 18,500 Total required units 41,900 62,300 Less: Beginning finished goods units 8,200 12, 100 Required production units 33,700 50,200 83,900 Six Direct Materials Budget - Gumm For the Six Months Ending June 30, 2017 Quarter 2 Months Units to be produced 33,700 50,200 Direct materials per unit (pounds) Total pounds needed for production 134,800 200.800 Add: Desired ending direct materials (pounds) 10,100 13,200 Total materials required 144,900 | 214,000 Less: Beginning direct materials (pounds) 9,500 10,100 Direct materials purchases 135,400 203,900 Cost per pound 3.80 3.80 Total cost of direct materials purchases 514,520 774,820 1,289,340

Direct Labor Budget For the Six Months Ending June 30, 2017 Quarter Six 1 2 Months Units to be produced 33,700 50,200 Direct labor hours per unit (15/60) 0.25 0.25 Total required direct labor hours 8,425 12,550 Direct labor cost per hour 16 16 Total direct labor cost 134,800 200,800 335,600 Selling and Administrative Budget For the Six Months Ending June 30, 2017 Quarter Six Months 4,636,800 total sales 1,877,400 2,759,400 Variable (0.15 x sales) Fixed Total 281,610 180,000 461,610 413,910 180,000 593,910 695,520 360,000 1,055,520 Budgeted Income Statement For the Six Months Ending June 30, 2017 Sales revenue 4,636, 800 **Cost of goods sold =73600* 34.7** 2,553,920 Gross Profit 2,082,880 Selling and administrative expenses 1,055,520 Income from operations 1,027,360 Interest expense 100,000 Income before tax 927,360 Income tax expense (30%) 278,208 Net income/(Loss) 649, 152 **unit cost direct mateial Gumm (4*3.8) Tarr (6*1.75) direct labor (0.25*16) manufacturing overhead (4*125%) unit cost 15.200 10.500 25.70 4.00 5.00 34.70