Problem 21-1A Cook Farm Supply Company manufactures and sells a pesticide called

Question

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. Sales: quarter 1, 29,400 bags; quarter 2, 44,000 bags. Selling price is S61 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 January1 April 1 July 1 Snare (bags) Gumm (pounds) Tarr (pounds) 8,500 9,400 14,400 12,300 10,200 20,500 18,500 13,100 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 purchases to be $299,000 in quarter 1 and $426,500 in quarter 2 2 the direct materials budget for Tarr shows the cost of Tarr

Explanation / Answer

Sales budget Quarter 1 Quarter 2 Six months Expected unit sales 29400 44000 73400 Unit selling price 61 61 Total sales (Unit sales * selling price) 1793400 2684000 4477400 Production Budget Quarter 1 Quarter 2 Six months Expected unit sales 29400 44000 Add: Desired ending finished goods units 12300 18500 Total required units 41700 62500 Less: Beginning finished goods units -8500 -12300 Required production units 33200 50200 83400 Direct Materials Budget- Gum Quarter 1 Quarter 2 Six months Units to be produced 33200 50200 Direct material per unit 5 5 Total pounds needed for production 166000 251000 Add: desired ending direct material 10200 13100 Total material required 176200 264100 Less: Beginning direct material -9400 -10200 Direct material purchases 166800 253900 Cost per pound 3.8 3.8 Total cost of direct material purchases 633840 964820 1598660 Direct Labor Budget Quarter 1 Quarter 2 Six months Units to be produced 33200 50200 Direct labor time (hours) per unit (15 / 60) Total required direct labor hours 8300 12550 Direct labor cost per hour 16 16 Total direct labor cost 132800 200800 333600 Selling and Administrative Expenses Budget    Quarter 1 Quarter 2 Six months    Budgeted sales in units 29400 44000 73400 Variable (15% of sales) 269010 402600 Fixed 180000 180000 Total 449010 582600 1031610 Budgeted Income Statement Particulars Amount Sales 4477400 Cost of goods Sold (73400 * 38.5) -2825900 Gross profit 1651500 Selling and Administrative Expenses -1031610 Income from operations 619890 Income tax expenses -185967 185967 Net income 433923 *Selling price = *Calculation : 5 pounds * 3.8 per pound    19 6 pounds * 1.75 per pound 10.5 1 / 4 hour * 16 4 125% of direct labor cost (4) 5 Total 38.5

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