*Problem 21-1A *****NEED HELP WITH THE FINAL STEP PLEASE***** Prepare the budget
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Question
*Problem 21-1A
*****NEED HELP WITH THE FINAL STEP PLEASE***** Prepare the budgeted multiple-step income statement for the first 6 months
Type of Inventory
January 1
April 1
July 1
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 $297,000 in quarter 1 and $439,500 in quarter 2.
1. Sales: quarter 1, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 per bag. 2. Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.8 per pound and 6 pounds of Tarr at $1.5 per pound. 3. Desired inventory levels:
Type of Inventory
January 1
April 1
July 1
Snare (bags) 8,000 15,000 18,000 Gumm (pounds) 9,000 10,000 13,000 Tarr (pounds) 14,000 20,000 25,000 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 $175,000 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 $297,000 in quarter 1 and $439,500 in quarter 2.
Explanation / Answer
Firstly we need to calculate cost of goods sold which is shown as follows:-
Total units produced in six months = 47,000+59,000 = 106,000
Total Direct Materials consumed = Materials consumed Gumm+Materials Consumed Tarr
= (106,000*4 pounds*$3.80)+(106,000*6 pounds*$1.50)
= $1,611,200+$954,000 = $2,565,200
Direct Labor for units produced = $424,000
Manufacturing Overhead = $424,000*125% = $530,000
Total Cost for units produced = Materials+Labor+Manufacturing Overhead
= $2,565,200+$424,000+$530,000 = $3,519,200
Total units sold = 40,000+56,000 = 96,000
Cost of goods sold for 96,000 units = ($3,519,200/106,000 units)*96,000 units = $3,187,200
Budgeted Income statement is shown as follows
Cook Farm Supply Company
Budgeted Income Statement for six months ending June 30, 2017 (Amts in $)
Sales 5,760,000 Less: Cost of goods sold (3,187,200) Gross Profit 2,572,800 Less: Selling and Administrative Expenses (1,214,000) Income from Operations 1,358,800 Less: Interest Expense (100,000) Income before Income Tax 1,258,800 Less: Income Tax expense(30%*$1,258,800) (377,640) Net Income 881,160
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