P21-1A Prepare budgeted income statement and supporting budgets. 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, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 per bag. 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. 3. Desired inventory levels: Type of Inventory Snare (bags) Gumm (pounds) Tarr (pounds) January 1 8,000 9,000 14,000 April 1 15,000 10,000 20,000 July 1 18,000 13,000 25,000 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 $175,000 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 $297,000 in quarter 1 and $439,500 in quarter 2. Instructions Prepare the budgeted multi-step income statement for the first 6 months and all required operating 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 for Tarr. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?". COOK FARM SUPPLY COMPANY Sales Budget For the Six Months Ending June 30, 2017 Quarter 1 2 | Value Value $60 $60 ? ? Expected unit sales Unit selling price Total sales Six Months ? $60 ? COOK FARM SUPPLY COMPANY Production Budget For the Six Months Ending June 30, 2017 Quarter Six Months Value Value Expected unit sales Add: Desired ending finished goods units Total required units Less: Beginning finished goods units Required production units Value Value ? Value ? Value ? COOK FARM SUPPLY COMPANY Direct Materials Budget - Gumm For the Six Months Ending June 30, 2017 Quarter Six Months 1 2 Value X 4lbs Units to be produced Direct materials per unit (lbs.) Total pounds needed for production Add: Desired ending direct materials (lbs.) Total materials required Less: Beginning direct materials (lbs.) Direct materials purchases Cost per pound Total cost of direct materials purchases Value X 4lbs ? Value ? Value I L Value ? Value ? X $3.80 ? X $3.80 Six Months 2 COOK FARM SUPPLY COMPANY Direct Labor Budget For the Six Months Ending June 30, 2017 Quarter 1 Units to be produced | Value Value Direct labor hours per unit X 1/4 X 1/4 Total required direct labor hours L ? L ? Direct labor cost per hour X $16 X $16 Total direct labor cost 2 ? Cost per Bag Quantity Unit Cost Total Cost Element Direct Materials Gumm Tarr Direct Labor Manufacturing overhead (125% of direct labor cost) Total 4 pounds 6 pounds 1/4 hour Value Value Value
