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

Question

Glendo 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 2014. 1. Sales: Quarter 1, 30,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag. 2. Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.5 per pound. 3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) 8,000 15,000 18,000 Gumm (pounds) 9,000 10,000 13,000 Tarr (pounds) 14,000 20,000 25,000 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 $175,000 per quarter. 6. Income taxes are expected to be 30% of income from operations. Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) The direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and $439,500 in quarter 2. Prepare the sales budget. GLENDO FARM SUPPLY COMPANY Sales Budget For the Six Months Ending June 30, 2014 Quarter Six Months 1 2 Expected unit sales Unit selling price $ $ $ Total sales $ $ $ Prepare the production budget. GLENDO FARM SUPPLY COMPANY Production Budget For the Six Months Ending June 30, 2014 Quarter Six Months 1 2 : : Prepare the direct materials budget. GLENDO FARM SUPPLY COMPANY Direct Materials Budget—Gumm For the Six Months Ending June 30, 2014 Quarter Six Months 1 2 : : $ $ $ $ $ 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) GLENDO FARM SUPPLY COMPANY Direct Labor Budget For the Six Months Ending June 30, 2014 Quarter Six Months 1 2 $ $ $ $ $ Prepare the selling and administrative budget. GLENDO FARM SUPPLY COMPANY Selling and Administrative Expense Budget For the Six Months Ending June 30, 2014 Quarter Six Months 1 2 Budgeted sales in units Variable $ $ $ Fixed Total $ $ $ Prepare the budgeted income statement. GLENDO FARM SUPPLY COMPANY Budgeted Income Statement For the Six Months Ending June 30, 2014 $ $

Explanation / Answer

Glendo Farm Supply Company Sales Budget for the six months ending June 30, 2014 Quarter 1 Quarter 2 Total Expected Unit selling price                              60                               60                    60 Budgeted sales in Units                     30,000                       42,000            72,000 Total Sales               1,800,000                 2,520,000      4,320,000 Glendo Farm Supply Company Production Budget for the six months ending June 30, 2014 Quarter 1 Quarter 2 Total Budgeted sales in Units                     30,000                       42,000            72,000 +Planned Ending Inventory                     15,000                       18,000 -Planned beginning Inventory                        8,000                       15,000 Units to be produced                     37,000                       45,000            82,000 Glendo Farm Supply Company Direct Materials - Gumm Budget for the six months ending June 30, 2014 Quarter 1 Quarter 2 Total Units to be produced                     37,000                       45,000            82,000 Pounds of Materials required - 4 Pounds per unit                   148,000                    180,000         328,000 +Planned Ending Inventory                     10,000                       13,000 -Planned beginning Inventory                        9,000                       10,000 Pounds of materials to be bought                   149,000                    183,000         332,000 Rate per pound                          3.80                           3.80 Cost of purchase - Gumm                   566,200                    695,400      1,261,600 Glendo Farm Supply Company Direct Labor Budget for the six months ending June 30, 2014 Quarter 1 Quarter 2 Total Units to be produced                     37,000                       45,000            82,000 Time required to maufacture one unit (in hrs)                          0.25                           0.25 Budgeted hours of direct labor                        9,250                       11,250            20,500 Rate per hour                              16                               16 Budgted direct labor                   148,000                    180,000         328,000 Glendo Farm Supply Company Selling and Administrative expenses Budget for the six months ending June 30, 2014 Quarter 1 Quarter 2 Total Variable selling expenses (15% of sales)                   270,000                    378,000         648,000 Fixed selling expenses                   175,000                    175,000         350,000 Total                   445,000                    553,000         998,000 Glendo Farm Supply Company Budgeted Income Statement for the six months ending June 30, 2014 Quarter 1 Quarter 2 Total Sales               1,800,000                 2,520,000      4,320,000 COGS Direct materials - Gumm                   566,200                    695,400      1,261,600 Direct materials - Tarr                   297,000                    439,500         736,500 Direct Labor                   148,000                    180,000         328,000 Selling and Administrative expenses                   445,000                    553,000         998,000 Income from operations                   343,800                    652,100         995,900 Income tax                   103,140                    195,630         298,770 Net Income                   240,660                    456,470         697,130

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