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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
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, 28,600 bags; quarter 2, 42,600 bags. Selling price is $63 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 $1.75 per pound. | |
3. | Desired inventory levels: |
Type of Inventory | January 1 | April 1 | July 1 | |||
Snare (bags) | 8,200 | 12,100 | 18,500 | |||
Gumm (pounds) | 9,400 | 10,300 | 13,400 | |||
Tarr (pounds) | 14,500 | 20,100 | 25,500 |
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 $176,000 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 $422,500 in quarter 2.
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