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, 40,000 bags; quarter 2, 56,000 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 $1.50 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. 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 $297,000 in quarter 1 and $439,500 in quarter 2.

C+A80:G112OOK FARM SUPPLY COMPANY
Selling and Administrative Budget
For the Six Months Ending June 30, 2017
		Quarter		Six
		1	2	Months
Budgeted sales in units		?	?	?
Variable (.15 x sales)		?	?	?
Fixed		Value	Value	?
Total		?	?	?
COOK FARM SUPPLY COMPANY
Budgeted Income Statement
For the Six Months Ending June 30, 2017
Sales revenue		?
Cost of goods sold		?
Gross Profit		?
Selling and administrative expenses		Value
Income from operations		?
Interest expense		Value
Income before income tax		?
Income tax expense (30%)		?
Net income		?
	Cost per Bag
	Cost Element	Quantity	Unit Cost	Total
	Direct Materials
	Gumm	4 pounds	Value	?
	Tarr	6 pounds	Value	?
	Direct Labor	1/4 hour	Value	?
	Manufacturing overhead			?
	(125% of direct labor cost)
	Total			?

Answer 1

COOK FARM SUPPLY COMPANY
Budgeted Income Statement
For the Six Months Ending June 30, 2017
Sales revenue				5760000
Cost of goods sold	(96000*33.2)			3187200
Gross Profit				2572800
Selling and administrative expenses	(5760000*15%) + (175000*2)			1214000
Income from operations				1358800
Interest expense				100000
Income before income tax				1258800
Income tax expense (30%)				377640
Net income				881160
	Cost per Bag
	Cost Element	Quantity	Unit Cost	Total
	Direct Materials
	Gumm	4 pounds	3.8	15.2
	Tarr	6 pounds	1.5	9
	Direct Labor	1/4 hour	16	4
	Manufacturing overhead			5
	(125% of direct labor cost)
	Total			33.2