Mercer Farm Supply Company manufactures and sells a fertilizer called Basic II.
ID: 2571468 • Letter: M
Question
Mercer Farm Supply Company manufactures and sells a fertilizer called Basic II. The following data are available for preparing budgets for Basic II for the first 2 quarters of 2017.
1. Sales: quarter 1, 40,000 bags; quarter 2, 50,000 bags. Selling price is $63 per bag.
2. Direct materials: each bag of Basic II requires 5 pounds of Crup at a cost of $3.80 per pound and 10 pounds of Dert at $1.50 per pound.
3. Desired inventory levels:
Type of Inventory
January 1
April 1
July 1
Basic II (bags)
10,000
15,000
20,000
Crup (pounds)
9,000
12,000
15,000
Dert (pounds)
15,000
20,000
25,000
4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $12 per hour.
5. Selling and admin expenses are expected to be 10% of sales plus $150,000 per quarter.
6. Interest expense is $70,000.
7. Income taxes are expected to be 30% of income before income taxes.
Your assistant has prepared two budgets:
(1) The mtg overhead budget shows expected costs to be 100% of direct labor cost.
(2) The direct materials budget for Dert which shows the cost $682,500 in quarter 1
and $832,500 in quarter 2.
Instructions
Prepare the budgeted multiple-step income statement for the first 6 months of 2017 and all required supporting budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget.) Do not prepare the manufacturing overhead budget or the direct materials budget for Dert.
PROBLEM 23-1B
Mercer Farm Supply Company
Sales Budget
For the Six Months Ending June 30, 2017
1st Qtr
2nd Qtr
Six Months
Expected unit sales
Unit selling price
Total Sales
Mercer Farm Supply Company
Production Budget
For the Six Months Ending June 30, 2017
1st Qtr
2nd Qtr
Six Months
Expected unit sales
40,000
50,000
- - -
- - -
- - -
- - -
Required Production Units
Mercer Farm Supply Company
Direct Materials Budget - Crup
For the Six Months Ending June 30, 2017
1st Qtr
2nd Qtr
Six Months
Units to be produced
- - -
- - -
- - -
- - -
- - -
- - -
- - -
Cost Per Pound
- - -
Total Cost of Dir Mat’l Purchases
Direct Labor Budget
For the Six Months Ending June 30, 2017
1st Qtr
2nd Qtr
Six Months
Units to be Produced
- - -
- - -
- - -
- - -
Total Direct Labor Cost
Selling & Admin Budget
For the Six Months Ending June 30, 2017
1st Qtr
2nd Qtr
Six Months
Budgeted Sales in Units
Variable (.10 x sales)
Fixed
Total
Budgeted Income Statement
For the Six Months Ending June 30, 2017
Sales
Net Income
Cost Per Bag
Cost Element
Quantity
Unit Cost
Total
Direct Materials:
Crup
Dert
Direct Labor
Mfg Overhead (100% of Dir Lbr Cost)
- - -
- - -
Total
- - -
- - -
Type of Inventory
January 1
April 1
July 1
Basic II (bags)
10,000
15,000
20,000
Crup (pounds)
9,000
12,000
15,000
Dert (pounds)
15,000
20,000
25,000
Explanation / Answer
Supporting budgets:
Selling and administrative:
Budgeted Income statement for 6 months Net sales 24,570,000.00 cost of goods sold: Direct material cost 13,260,000.00 Direct labor cost 300,000.00 Manufacturing OH 300,000.00 13,860,000.00 Gross margin 10,710,000.00 Selling and administrative expense 2,757,000.00 2,757,000.00 Income before tax 7,953,000.00 Income tax expense 2,385,900.00 Income from operations 5,567,100.00