P22-1A 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 2020. 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, 2020 Quarter 1 2 Value $60 $60 Expected unit sales Unit selling price Total sales Six Months ? $60 Sex Months COOK FARM SUPPLY COMPANY Production Budget For the Six Months Ending June 30, 2020 Quarter 1 2 Expected unit sales Value Value Add: Desired ending finished goods units Value Value Total required units ? ? Less: Beginning finished goods units Value 1 Value Required production units Sex Months UUR FARM SUPPLY COMPANY Direct Materials Budget - Gumm For the Six Months Ending June 30, 2020 Quarter 1 2 Units to be produced Value Value Direct materials per unit (lbs.) X 4lbs x 4lbs Total pounds needed for production Add: Desired ending direct materials (lbs.) Tatal materials required Less: Beginning direct materials (lbs.) Value Value Direct materials purchases Cost per pound X $3.80 x $3.80 Total cost of direct materials purchases Months COOK FARM SUPPLY COMPANY Direct Labor Budget For the Six Months Ending June 30, 2020 Quarter 1 2 Units to be produced Value Value Direct labor hours per unit X 1/4 X 1/4 Total required direct labor hours ? ? Direct labor cost per hour X S16 X S16 Total direct labor cost COOK FARM SUPPLY COMPANY Selling and Administrative Budget For the Six Months Ending June 30, 2020 Quarter 1 2 Budgeted sales in units Value Value Sex Months ? 1 Variable .15 x sales) Fixed Total Value Value Value Value ? ? COOK FARM SUPPLY COMPANY Budgeted Income Statement For the Six Months Ending June 30, 2020 Sales revenue Cost of goods sold Gross Profit Selling and administrative expenses Value Income from operations Interest expense Value Income before income tax Income tax expense (30%) Net income Selling and Administrative Budget For the Six Months Ending June 30 2020 Quarter 1 2 Budgeted sales in units Value 1 Value Sex Months ? 1 Variable (.15 x sales) Fixed Total Value Value Value V alue ? ? COOK FARM SUPPLY COMPANY Budgeted Income Statement For the Six Months Ending June 30, 2020 Sales revenue Cost of goods sold Gross Profit Selling and administrative expenses Value Income from operations Interest expense Value Income before income tax Income tax expense (30%) Net income 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 ? ? ? After you have completed P22-1A consider the following additional question. 1. Assume that the expected unit sales in Quarter 1 changed to 36,000 bags of Snare. Also assume that the amount of direct material (Gumm) used changed to 5 pounds per bag: and, that the direct labor rate changed to $18 per hour. Revise the budgets and budgeted income statement to reflect these changes