Cook Farm Supply Company manufactures and sells a pesticide called Snare. The fo
ID: 2459850 • Letter: C
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, 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)
8,100
12,200
18,500
Gumm (pounds)
9,300
10,100
13,100
Tarr (pounds)
14,100
20,200
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 $179,000 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 $424,500 in quarter 2.
1.
Sales: quarter 1, 29,400 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:
Explanation / Answer
Q1 Q2 Sales 29400 42200 Cost DM Gumm 5 per bag $3.80 Tarr 6 per bag $1.50 Production Budget Op Stock Closing stock sales Production Snare Bags 8100 12200 29400 33500 Op Stock Closing Stock Consumtion Purchase Rate Amount Gumm 9300 10100 167500 168300 $3.80 $639,540.00 Tarr 14100 20200 201000 207100 $1.50 $310,650.00