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, 28,400 bags; quarter 2, 42,200 bags. Selling price is $62 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 $1.50 per pound.
3.		Desired inventory levels:

Type of Inventory		January 1		April 1		July 1
Snare (bags)		8,500		12,300		18,100
Gumm (pounds)		9,300		10,300		13,100
Tarr (pounds)		14,300		20,500		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 $299,000 in quarter 1 and $427,500 in quarter 2.

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 $427,500 in quarter 2.

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.

Answer 1

Solution:

Sales Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Expected unit sales	28400	42200	70600
Unit selling price	$62.00	$62.00	$62.00
Budgeted Sales Revenue	$1,760,800.00	$2,616,400.00	$4,377,200.00

Production Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Expected unit sales	28400	42200	70600
Add: Desired ending finished goods units	12300	18100	18100
Total required units	40700	60300	88700
Less: Beginning finished goods units	8500	12300	8500
Budgeted production units	32200	48000	80200

Direct Material Budget - Gumm - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Budgeted production units	32200	48000	80200
Material needed per unit	5	5	5
Total material requirement to meet production	161000	240000	401000
Add: Desired units of material of Gumm in ending inventory	10300	13100	13100
Total needs	171300	253100	414100
Less: units of material in beginning inventory	9300	10300	9300
Budgeted purchase units of Gumm (In Pound)	162000	242800	404800
Cost per pound	$3.80	$3.80	$3.80
Budgeted cost of raw material purchases	$615,600.00	$922,640.00	$1,538,240.00

Direct Labor Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Unit to Produce	32200	48000	80200
Direct labor required per unit (in hrs)	0.25	0.25	0.25
Required direct labor hours	8050	12000	20050
Labor rate	$16.00	$16.00	$16.00
Budgeted direct labor cost	$128,800.00	$192,000.00	$320,800.00

Selling and Administrative expenses Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Variable selling expenses (15% of sales)	$264,120.00	$392,460.00	$656,580.00
Fixed selling expenses	$176,000.00	$176,000.00	$352,000.00
Budgeted selling and administrative expenses	$440,120.00	$568,460.00	$1,008,580.00