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, 28,600 bags; quarter 2, 43,400 bags. Selling price is $62 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 $1.50 per pound. 3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) 8,400 12,300 18,300 Gumm (pounds) 9,400 10,500 13,500 Tarr (pounds) 14,300 20,400 25,100 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 $178,000 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 $299,000 in quarter 1 and $426,500 in quarter 2.

Answer 1

Sales budget

	Quarter 1	Quarter 2	Six months
Budgeted unit sales	28600	43400	72000
Unit Selling price	62	62	62
Total Sales	1773200	2690800	4464000

Production Budget

	Quarter 1	quarter 2	Six month
Sales Unit	28600	43400
Add: Desired ending inventory	12300	18300
Total	40900	61700
Less: Beginning inventory	-8400	-12300
Production Unit	32500	49400	81900