Question

Johnson 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 2020.

1. Sales: Quarter 1, 28,600 bags; quarter 2, 42,600 bags. Selling price is $62 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

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Snare (Bags) 8,100 12,400 18,500

Gumm (pounds) 9,100 10,300 13,200

Tarr (pounds) 14,300 20,300 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 $299,000 in quarter 1 and $425,500 in quarter 2.

(Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

-Prepare the Sales budget. It has to show numbers for Quarter 1 and Quarter 2 as well as for 6 months

-Prepare the production budget it has to show numbers for Quarter 1 and Quarter 2 as well as for 6 months

-Prepare the direct materials budget while showing numbers for Quarter 1 and Quarter 2 and for 6 months

-Prepare the direct labor budget while showing numbers for Quarter 1 and Quarter 2 and for 6 months

-Prepare the selling and administrative expense budget while showing numbers for Quarter 1 and Quarter 2 and for 6 months

-Prepare the budgeted multiple-step income statement for the first 6 months

Answer 1

Answer is given below with all working

Sales Budget Quarter 1 Quarter 2 28,600 Expected unit Sales Unit Selling price Total Sales Six Months 71,200 $62 $4,414,400 42,600 $62 $2,641,200 $62 $1,773,200 Production Budget Quarter 1 Quarter 2 Expected Unit Sales Add: Desired Ending Finished Goods Total required Units Less: Beginning Finished Goods Units Required Production Units 28,600 12,400 41,000 8,100 32,900 42,600 18,500 61,100 12,400 48,700 Six Months 71,200 18,500 89,700 8,100 81,600 Direct Material Budget-Gumm Quarter 1 Quarter 2 Six Months Units to be produced Direct Material per unit Total pounds need for production Add: Desired Ending Direct Material (pounds) Total Material needed Less: Beginning Direct Material (pounds) Direct Material purchases 32,900 4.00 131,600 10,300 141,900 9,100 132,800 48,700 4.00 194,800 13,200 208,000 10,300 197,700 326,400 13,200 339,600 9,100 330,500 Cost per pound Total Cost of Direct Material purchases $3.80 $504,640 $3.80 $751,260 $3.80 $1,255,900 | Direct Labor Budget Quarter 1 Quarter 2 Six Months Units to be produced Direct Labor time (hours )per unit Total required Direct Labor hours Direct Labor cost per unit Total Direct Labor cost 32,900 0.25 8,225 $16 $131,600 48,700 0.25 12,175 $16 $194,800 $326,400 Selling and Administration Expense Budget Quarter 2 Quarter 1 $1,773,200 Six Months $4,414,400 Sales $2,641,200 Variable expenses - 15% of Sales Fixed expenses Total Selling and administration budget $265,980 $177,000 $442,980 $396,180 $177,000 $573,180 $662,160 $354,000 $1,016,160 | JOHNSON SUPPLY COMPANY Budgeted Income Statement For the six months Ending June 30, 2020 Sales Cost of Goods Sold Gross profit Selling and administrative expenses Income from Operations Interest expense Income before Income Tax Income Tax expense Net Income/(Loss) $4,414,400 $2,363,840 $2,050,560 $1,016,160 $1,034,400 $100,000 $934,400 $280,320 $654,080 Cost of Goods Sold Direct Material Gumm ( 71,200 X 4 pounds X $3.80) Tarr ( 71,200 X 6 pounds X $1.50 ) Direct Labor ( 71,200 x 0.25 X $16) Manufacturing Overhead ( 125% of Direct Labor) Total Cost of Goods Sold $1,082,240 $640,800 $284,800 $356,000 $2,363,840