P21-1A

Glendo 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 2014.

1. Sales quarter 1 = 30,000 bags. Quarter 2 = 42,000 bags.

Price is 60 per bag

Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of 3.80 per pound

Direct materials: each bag of Snare requires 6 pounds of Tarr at 1.50 per pound.

Desired inventroy levels:

type of inventory	Jan 1	Apr 1	Jul 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

Direct Labor: 15 minutes per bag at an hourly rate of 16.00 per hour

Selling and Admin expenses are expected to be 15% of sales plus 175,000 per quarter

Income taxes are expected to be 30% of income from operations

Assistant has prepared two budgets: (1) manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) Direct materials budget for Tarr shows the cost of Tarr purchases to be 297,000 in quarter 1 and 439,500 in quarter 2.

Instructions:

Prepare the budgeted income statement for the first 6 months and all required operating budgets by quarters. (Note: Use variable and fixed in the selling and admin expense budget.) Do Not prepare the manufacturing overhead budget or the direct materials budget for Tarr.