Danner Farm Supply Company manufactures and sells a pesticide called Snare. The

Question

Danner 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 2009.

Sales: Quarter 1, 28,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag.

Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4 per pound and 6 pounds of Tarr at $1.50 per pound.

Desired inventory levels:

Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.

Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.

Income taxes are expected to be 30% of income from operations.

Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) The direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and $421,500 in quarter 2.

Complete the budgeted income statement for the first 6 months and all required supporting budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget).

For the Six Months Ending June 30, 2009

Quarter

Six

1

2

Months

× $

× $

× $

$

$

$

For the Six Months Ending June 30, 2009

Quarter

Six

1

2

Months

Type of Inventory January 1 April 1 July 1 Snare (bags) 8,000 12,000 18,000 Gumm (pounds) 9,000 10,000 13,000 Tarr (pounds) 14,000 20,000 25,000

Explanation / Answer

x.

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