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, 28,100 bags; quarter 2, 43,400 bags. Selling price is $63 per bag.
2.		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.
3.		Desired inventory levels:

Type of Inventory		January 1		April 1		July 1
Snare (bags)		8,100		12,500		18,300
Gumm (pounds)		9,100		10,200		13,100
Tarr (pounds)		14,200		20,500		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 $177,000 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 $303,000 in quarter 1 and $423,500 in quarter 2.

Prepare the direct materials budget. (Round Cost per pound answers to 2 decimal places, e.g. 52.70.)

COOK FARM SUPPLY COMPANY Direct Materials Budget—Gumm                                                                       June 30, 2017For the Quarter Ending June 30, 2017For the Six Months Ending June 30, 2017
		Quarter				Six Months
		1		2
Units to be ProducedDirect Materials per UnitExpected Unit SalesTotal Materials RequiredBeginning Direct MaterialsDirect Labor Cost per HourTotal Required UnitsDesired Ending Finished Goods UnitsTotal Pounds Needed for ProductionDirect Labor Time per UnitDirect Materials PurchasesDesired Ending Direct MaterialsTotal Required Direct Labor HoursBeginning Finished Goods UnitsTotal Cost of Direct Materials PurchasesCost per PoundTotal Direct Labor Cost
Total Required UnitsBeginning Finished Goods UnitsCost per PoundUnits to be ProducedTotal Pounds Needed for ProductionDirect Materials per UnitDirect Labor Time per UnitTotal Direct Labor CostDesired Ending Finished Goods UnitsDesired Ending Direct MaterialsBeginning Direct MaterialsTotal Cost of Direct Materials PurchasesDirect Labor Cost per HourTotal Materials RequiredDirect Materials PurchasesTotal Required Direct Labor HoursExpected Unit Sales
Beginning Finished Goods UnitsDirect Materials per UnitDirect Labor Time per UnitTotal Pounds Needed for ProductionBeginning Direct MaterialsCost per PoundTotal Required UnitsUnits to be ProducedDirect Labor Cost per HourExpected Unit SalesTotal Required Direct Labor HoursTotal Direct Labor CostTotal Materials RequiredTotal Cost of Direct Materials PurchasesDirect Materials PurchasesDesired Ending Direct MaterialsDesired Ending Finished Goods Units
AddLess:                                                                       Total Required UnitsDirect Materials per UnitUnits to be ProducedDirect Labor Time per UnitTotal Materials RequiredTotal Required Direct Labor HoursTotal Pounds Needed for ProductionDirect Materials PurchasesDesired Ending Direct MaterialsExpected Unit SalesTotal Direct Labor CostBeginning Finished Goods UnitsBeginning Direct MaterialsTotal Cost of Direct Materials PurchasesCost per PoundDesired Ending Finished Goods UnitsDirect Labor Cost per Hour
Direct Materials PurchasesDirect Labor Cost per HourTotal Direct Labor CostTotal Pounds Needed for ProductionDesired Ending Finished Goods UnitsUnits to be ProducedTotal Required UnitsTotal Cost of Direct Materials PurchasesDesired Ending Direct MaterialsCost per PoundDirect Labor Time per UnitTotal Required Direct Labor HoursBeginning Direct MaterialsBeginning Finished Goods UnitsDirect Materials per UnitTotal Materials RequiredExpected Unit Sales
AddLess:                                                                       Total Required Direct Labor HoursBeginning Finished Goods UnitsTotal Direct Labor CostDesired Ending Finished Goods UnitsDirect Labor Cost per HourDesired Ending Direct MaterialsTotal Pounds Needed for ProductionBeginning Direct MaterialsUnits to be ProducedExpected Unit SalesCost per PoundTotal Materials RequiredDirect Materials per UnitDirect Labor Time per UnitTotal Required UnitsTotal Cost of Direct Materials PurchasesDirect Materials Purchases
Total Required Direct Labor HoursTotal Cost of Direct Materials PurchasesDesired Ending Direct MaterialsUnits to be ProducedTotal Required UnitsTotal Direct Labor CostBeginning Finished Goods UnitsBeginning Direct MaterialsDirect Materials per UnitDesired Ending Finished Goods UnitsDirect Labor Cost per HourDirect Materials PurchasesDirect Labor Time per UnitTotal Materials RequiredTotal Pounds Needed for ProductionCost per PoundExpected Unit Sales
Desired Ending Direct MaterialsExpected Unit SalesTotal Materials RequiredTotal Pounds Needed for ProductionBeginning Finished Goods UnitsTotal Cost of Direct Materials PurchasesCost per PoundDirect Labor Time per UnitDirect Materials per UnitDirect Labor Cost per HourDirect Materials PurchasesTotal Required Direct Labor HoursTotal Required UnitsTotal Direct Labor CostBeginning Direct MaterialsUnits to be ProducedDesired Ending Finished Goods Units		$		$
Total Required UnitsTotal Cost of Direct Materials PurchasesCost per PoundDirect Materials PurchasesDirect Labor Cost per HourTotal Required Direct Labor HoursUnits to be ProducedTotal Materials RequiredDesired Ending Finished Goods UnitsExpected Unit SalesTotal Pounds Needed for ProductionBeginning Finished Goods UnitsTotal Direct Labor CostDirect Materials per UnitBeginning Direct MaterialsDesired Ending Direct MaterialsDirect Labor Time per Unit		$		$		$

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.)

Prepare the selling and administrative expense budget.

Answer 1

Solution:

Sales Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Expected unit sales	28100	43400	71500
Unit selling price	$63.00	$63.00	$63.00
Budgeted Sales Revenue	$1,770,300.00	$2,734,200.00	$4,504,500.00

Production Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Expected unit sales	28100	43400	71500
Add: Desired ending finished goods units	12500	18300	18300
Total required units	40600	61700	89800
Less: Beginning finished goods units	8100	12500	8100
Budgeted production units	32500	49200	81700

Direct Material Budget - Gumm - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Budgeted production units	32500	49200	81700
Material needed per unit	4	4	4
Total material requirment to meet production	130000	196800	326800
Add: Desired units of material of Gumm in ending inventory	10200	13100	13100
Total needs	140200	209900	339900
Less: units of material in beginning inventory	9100	10200	9100
Budgeter purchase units of Gumm (In Pound)	131100	199700	330800
Cost per pound	$3.80	$3.80	$3.80
Budgeted cost of raw material purchases	$498,180.00	$758,860.00	$1,257,040.00

Direct Labor Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Unit to Produce	32500	49200	81700
Direct labor required per unit (in hrs)	0.25	0.25	0.25
Required direct labor hours	8125	12300	20425
Labor rate	$16.00	$16.00	$16.00
Budgeted direct labor cost	$130,000.00	$196,800.00	$326,800.00

Selling and Administartive expenses Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Variable selling expenses (15% of sales)	$265,545.00	$410,130.00	$675,675.00
Fixed selling expenses	$177,000.00	$177,000.00	$354,000.00
Budgeted selling and administrative expenses	$442,545.00	$587,130.00	$1,029,675.00