Cook Farm Supply Company manufactures and sells a pesticide called Snare. The fo
ID: 2554447 • 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, 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 $426,500 in quarter 2. Prepare the sales budget. Prepare the production budget. Prepare the direct materials budget. Prepare the direct labor budget. Prepare the selling and administrative expense budget. Prepare the budgeted multiple-step income statement for the first 6 months.
Explanation / Answer
Statement Showing Sales Budget Quarter-1 Quarter-2 Total Sales ( in bags)) 29400 44000 73400 Sales ($/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