Question

Sunland 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 2020 1. Sales: quarter 1, 29,600 bags: quarter 2,44,000 bags. Selling price is $63 per bag. Direct materials: each bag of Snare requires 5 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.75 per pound. 3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) 8.200 12,300 18,100 Gumm (pounds) 9,300 10,100 13,300 Tarr (pounds) 14,300 20,300 25,200 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 (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $300,000 in quarter 1 and $423,500 in quarter 2 (Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

Answer 1

SUNLAND FARM SUPPLY COMPANY BUDGETED INCOME STATEMENT FOR THE SIX MONTH ENDING JUNE30 ,2020
Sales	4636800
cost of goods sold (73600* 38.5)	(2833600)
Gross profit	1803200
selling and administrative expense	(1055520)
Income from operations	747680
Interest expense	(100000)
Income before income tax	647680
Income tax expense [647680*30%)	(194304)
Net income /(loss)	453376

1)

Total sales in units for six month = 29600+44000=73600 units

Total sales = 73600*63 = 4636800

2)

Unit product cost:

Direct material
Gumm (5*3.8)	19
Tarr (6*1.75)	10.5
Direct labor (16*15/60)	4
Overhead (4*125%)	5
Unit product cost	38.50

3)Selling and administrative expense =[4636800*15% )variable + [180000*2 quarters ] Fixed

               = 695520+ 360000

                = 1055520