G 1 P22. P22-1A Prepare budgeted income statement and supporting budgets. 2 Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following 3 data are available for preparing budgets for Snare for the first 2 quarters of 2020. 41. Sales: quarter 1,40,000 bags; quarter 2,56,000 bags. Selling price is $60 per bag. 5 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 $1.50 per pound. 7 3. Desired inventory levels: 6 9 Type of Inventory January 1 April 1 July 1 10 Snare (bags) 8,000 15,000 18,000 11 Gumm (pounds) 9,000 10,000 13,000 12 Tarr (pounds) 14,000 20,000 25,000 13 14 4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour. 15 5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter. 16 6. Interest Expense is $100,000. 17 7. Income taxes are expected to be 30% of income berigre income taxes. Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected 19 costs to be 125% of direct labor cost, and (2) The direct materials budget for Tarr shows the cost of Tarr 20 purchases to be $297,000 in quarter 1 and $439,500 in quarter 2. 21 22 Instructions 23 Prepare the budgeted multi-step income statement for the first 6 months and all required operating budgets by 24 quarters. (Note: Use variable and fixed in the selling and administrative expense budget.) Do not 25 prepare the manufacturing overhead budget or the direct materials budget for Tarr. 26 NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" 18 27 28 C D 30 31 32 33 34 35 Expected unit sales 36 Unit selling price 37 Total sales COOK FARM SUPPLY COMPANY Sales Budget For the Six Months Ending June 30, 2020 Quarter 1 2 Value Value $60 $60 2 ? Six Months ? $60 ? 40 COOK FARM SUPPLY COMPANY 41 Production Budget 42 For the Six Months Ending June 30, 2020 43 Quarter 1 2 45 Expected unit sales Value Value 46 Add: Desired ending finished goods units Value Value 47 Total required units ? ? 48 Less: Beginning finished goods units Value Value 49 Required production units ? ? Six Months 7 Six Months 51 52 COOK FARM SUPPLY COMPANY S3 Direct Materials Budget - Gumm 54 For the Six Months Ending June 30, 2020 55 Quarter 56 1 2 $7 Units to be produced Value Value 58 Direct materials per unit (lbs) X 4ibs X 4lbs 59 Total pounds needed for production ? 60 Add: Desired ending direct materials (lbs) Value Value 61 Total materials required 2 ? 62 Less: Beginning direct materials (lbs.) Value Value 63 Direct materials purchases 2 64 Cost per pound X $3 80 X $3.80 65 Total cost of direct materials purchases ? 66 67 68 COOK FARM SUPPLY COMPANY 69 Dacabar P22-1A + 2 Ready Six Months 82 68 COOK FARM SUPPLY COMPANY 69 Direct Labor Budget 70 For the Six Months Ending June 30, 2020 71 Quarter 72 1 2. 73 Units to be produced Value Value 74 Direct labor hours per unit X 1/4 X 1/4 75 Total required direct labor hours ? 76 Direct labor cost per hour X $16 X $16 77 Total direct labor cost ? ? 78 79 80 COOK FARM SUPPLY COMPANY 81 Selling and Administrative Budget For the Six Months Ending June 30, 2020 83 Quarter 84 1 2 85 Budgeted sales in units Value Value 86 87 Variable (15 x sales) Value Value 88 Fixed Value Value 89 Total ? 2 90 91 92 COOK FARM SUPPLY COMPANY 93 Budgeted Income Statement 94 For the Six Months Ending June 30, 2020 95 Sales revenue ? 96 Cost of goods sold 2 97 Gross Profit 2 98 Selling and administrative expenses Value 99 income from operations ? 100 Interest expense Value 101 Income before income tax 102 Income tax expense (30%) 2 2 103 Net income 2 104 105 106 Cost per Bag Six Months ? ? ? P22-1A B D E Cost per Bag 3 Cost Element Quantity Unit Cost Total 9 Direct Materials 0 Gumm 4 pounds Value ? 11 Tarr 6 pounds Value ? 12 Direct Labor 1/4 hour Value 2 13 Manufacturing overhead ? 14 (125% of direct labor cost) -15 Total ? 116 117 118 119 After you have completed P22-1A consider the following additional question. 120 Assume that the expected unit sales in Quarter 1 changed to 36,000 bags of Snare. Also as 121 the amount of direct material (Gumm) used changed to 5 pounds per bag; and, that the direc 122 changed to $18 per hour. Revise the budgets and budgeted income statement to reflect thes 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 B P22-1A Ready