Cook Farm Supply Company manufactures and sells a pesticide called Snare. The fo

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, 28,000 bags; quarter 2, 43,300 bags. Selling price is $63 per bag Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.8 per pound and 6 pounds of Tarr at $1.50 per pound 2 3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) Gumm (pounds) Tarr (pounds) 8,400 9,500 14,500 12,500 10,300 20,100 18,400 13,400 25,100 4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $14 per hour 5. Selling and administrative expenses are expected to be 15% of sales plus $177,000 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 $300,000 in quarter 1 and $424,500 in quarter 2

Explanation / Answer

Working:

COOK FARM SUPPLY COMPANY Budgeted Income Statement for the six month ending June 30,2017 Sales 4491900 Cost of goods sold 1975010 Gross Profit 2516890 Selling andadministrative expenses 1027785 Income from operations 1489105 Interest expense 100000 Income before taxes 1389105 Income taxes 416732 Net income 972374

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