ORLANDO Farm Supply Company manufactures and sells a fertilizer called Basic II. The following data are available for preparing budgets for Basic II for the first 2 quarters of 2018.

1. Sales:

Selling price = $63 per bag.

Quarter 1 = 40,000 bags.

Quarter 2 = 50,000 bags.

2. Direct Materials: each bag of Basic II requires 5 pounds of Crup at a cost of $3.80 per pound and ten pounds of Dert at $1.50 per pound.

3. Desired Inventory levels:

Type of Inventory January 1 April 1 July 1

Basic II (bags) 10,000 15,000 20,000

Crup (pounds) 9,000 12,000 15,000

Dert (pounds) 15,000 20,000 25,000

4. Direct Labor: 15 minutes per bag at an hourly rate of $12 per hour.

5. Selling and Administrative expenses are expected to be 10% of sales plus $150,000 per quarter.

6. 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 100% of direct labor cost. (2) The direct materials budget for Dert which shows the cost of Dert to be $682,500 in Quarter 1 and $832,500 in Quarter 2.

Instructions.

Prepare the budgeted income statement for the first 6 months of 2018 and all required supporting budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget.) Do not prepare the manufacturing overhead budget or the direct materials budget.

Deliverables:

1. Sales Budget
2. Production Budget
3. Direct Materials Budget Crup
4. Direct Labor Budget
5. Selling and Administrative Expense Budget
6. Budgeted Income Statement
7. Cost Per Bag