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htips.ledugen.wileyplus.compeaugenpstudentymainir.unl WlleyPLUS: MyWleyPLUSI HelpI Contact Us I Kimmel, Accounting, 6e ACCOUNTING PRINCIPLES& II (ACC 2 STANDARD MEW PRINTER VERSION Problem 21-1A 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. 2. 3. Sales: quarter 1, 28,100 bags, quarter 2, 43,400 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. Desired inventory levels Type of Inventory January 1 April 1 July 1 Snare (bags) Gumm (pounds) Tarr (pounds) 8,100 9,100 14,200 12,500 10,200 20,500 18,300 13,100 25,500 4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of S16 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. Income taxes are expected to be 30% of income before income taxes. 7. 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 $303,000 in quarter 1 and $423,500 in quarter 2

Explanation / Answer

Cook Farm Supply Company Sales Budget For the six month ended June 30, 2017 Quarter Six Months 1 2 Expected unit sales 28100 43400 71500 Unit selling price 63 63 Total Sales 1770300 2734200 4504500 Cook Farm Supply Company Production Budget For the six month ended June 30, 2017 Quarter Six Months 1 2 Expected unit sales 28100 43400 Add : Desired ending finished goods units 12500 18300 Total required units 40600 61700 Less : Beginning finished good units 8100 12500 Required production units 32500 49200 81700 Cook Farm Supply Company Direct Material Budget For the six month ended June 30, 2017 Quarter Six Months 1 2 Required production units 32500 49200 Gumm pound required to produce a unit of Snare 4 4 Total Gumm Pounds required for production 130000 196800 Add : Ending Inventory of Gumm Pounds 10200 13100 Total Gumm Pounds needed 140200 209900 Less : Beginning inventory of Gumm pounds 9100 10200 Gumm Pounds to be purchased 131100 199700 Purchase price of per Gumm pound 3.8 3.8 Total purchase value of Gumm Pounds 498180 758860 1257040 Cook Farm Supply Company Direct Labor Budget For the six month ended June 30, 2017 Quarter Six Months 1 2 Required production units 32500 49200 Labor can produce snare in an hour 4 4 Total hours required to produce the requied units 8125 12300 Direct labor per hour rate 16 16 Total Direct Labor Cost 130000 196800 326800 Cook Farm Supply Company Selling & Administrative Expense Budget For the six month ended June 30, 2017 Quarter Six Months 1 2 Total Sales Value 1770300 2734200 4504500 Variable Selling & adminstrative expense 265545 410130 675675 Fixed Selling & administrative expense 177000 177000 354000 Total Selling & Administrative Expenses 442545 587130 1029675 Cook Farm Supply Company Budgeted Income statement For the six month ended June 30, 2017 Quarter Six Months 1 2 Sales 4504500 Less : Cost of goods sold Direct Materials 1730300 =28100*4*3.8+43400*4*3.8+28100*6*1.5+43400*6*1.5 Direct Labor 286000 manufacturing Overhead 357500 =286000*125% Gross margin 2130700 Expenses Selling & administrative expenses 1029675 Operating Income 1101025 Interest expense 100000 Net Income before taxes 1001025 Income tax expense @30% 300307.5 Net Income 700717.5 Note : Direct materials in cost of goods sold is arrived at by multiplying Materials required for production with purchase price

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