Type of Inventory January 1 April 1 July 1 (a) Quarter Six Months 1 2 Quarter Si

Question

Type of Inventory

January 1

April 1

July 1

(a)

Quarter

Six
Months

1

2

Quarter

Six
Months

1

2

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 2017.
1. Sales: quarter 1, 29,200 bags; quarter 2, 43,200 bags. Selling price is $61 per bag. 2. Direct materials: each bag of Snare requires 5 pounds of Gumm at a cost of $3.8 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

Snare (bags) 8,400 12,200 18,200 Gumm (pounds) 9,200 10,200 13,500 Tarr (pounds) 14,300 20,400 25,400 4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $14 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 $301,000 in quarter 1 and $425,500 in quarter 2.

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

Explanation / Answer

Solution a:

Solution b:

Sales Budget - Cook Farm Supply Company Particulars Q1 Q2 6 Months Sales units 29200 43200 72400 Selling price per unit $61.00 $61.00 $61.00 Budgeted Sales Revenue $1,781,200.00 $2,635,200.00 $4,416,400.00

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