Question

Question 3 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 2020. 1. Sales: quarter 1, 29,400 bags; quarter 2, 42,600 bags. Selling price is $63 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 $1.75 per pound. 3. Desired inventory levels: January 1 April 1 July 1 Type of Inventory Snare (bags) Gumm (pounds) Tarr (pounds) 8,100 9,500 14,200 12,200 10,100 20,500 18,100 13,200 25,400 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 $179,000 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 $301,000 in quarter 1 and $426,500 in quarter 2. (Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

Answer 1

Sales Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Expected unit sales	29,400.00	42,600.00	72,000.00
Unit selling price	$63.00	$63.00	$63.00
Budgeted Sales Revenue	$1,852,200.00	$2,683,800.00	$4,536,000.00
Production Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Expected unit sales	29,400.00	42,600.00	72,000.00
Add: Desired ending finished goods units	12,200.00	18,100.00	18,100.00
Total required units	41,600.00	60,700.00	90,100.00
Less: Beginning finished goods units	8,100.00	12,200.00	8,100.00
Budgeted production units	33,500.00	48,500.00	82,000.00
Direct Material Budget - Gumm - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Budgeted production units	33,500.00	48,500.00	82,000.00
Material needed per unit	4	4	4
Total material requirement to meet production	134,000.00	194,000.00	328,000.00
Add: Desired units of material of Gumm in ending inventory	10,100.00	13,200.00	13,200.00
Total needs	144,100.00	207,200.00	341,200.00
Less: units of material in beginning inventory	9,500.00	10,100.00	9,500.00
Budgeted purchase units of Gumm (In Pound)	134,600.00	197,100.00	331,700.00
Cost per pound	$3.80	$3.80	$3.80
Budgeted cost of raw material purchases	$511,480.00	$748,980.00	$1,260,460.00
Direct Labor Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Unit to Produce	33,500.00	48,500.00	82,000.00
Direct labor required per unit (in hrs)	0.25	0.25	0.25
Required direct labor hours	8,375.00	12,125.00	20,500.00
Labor rate	$16.00	$16.00	$16.00
Budgeted direct labor cost	$                  134,000.00	$                         194,000.00	$             328,000.00
Selling and Administrative expenses Budget - Cook Farm Supply Company
Particulars	Q1	Q2	6 Months
Variable selling expenses (15% of sales)	$277,830.00	$402,570.00	$680,400.00
Fixed selling expenses	$179,000.00	$179,000.00	$358,000.00
Budgeted selling and administrative expenses	$456,830.00	$581,570.00	$1,038,400.00
COOK FARM SUPPLY COMPANY
Budgeted Income Statement
For The Six Month Ending June 30, 2020
Sales	$4,536,000
Cost of Goods Sold                [working note 1 below]	$2,417,400
Gross Profit	$2,118,600
Selling and Administrative Expenses	$1,038,400
Income from operatations	$1,080,200
Interest expense	$100,000
Income before Income Taxes	$980,200
Income Tax Expense  @ 30%	$294,060
Net Income / (Loss)	$686,140
.
Computation of Cost per unit
Direct materials:
Gumm   (4 pounds x $3.80)	$                           15.20
Tarr       (6 pounds x $1.75)	$                           10.50
Direct labor   (0.25 hours x $14)	$                             3.50
Manufactured overhead budget   [Direct labor cost x 125% = $3.5 x 125%]	$                             4.38
Cost per unit	$                           33.58
	Quarter 1	Quarter 2	6 months
Number of snare bags sold                                        (a)	29,400	42,600
Total cost per unit [Refer working note 2]                  (b)	$                           33.58	$                                  33.58
Cost of Goods Sold                                                       (a x b)	$987,105	$1,430,295	$2,417,400