P23-/ 4 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. Ditect 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. Ditect 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 Prepafe 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 Expected unit sales Unit selling price Total sales Value $60 ? Value $60 Six Months ? $60 ? Six Months 1 COOK FARM SUPPLY COMPANY Production Budget For the Six Months Ending June 30, 2017 Quarter 2 Expected unit sales Value Value Add: Desired ending finished goods units Value Value Total required units ? ? Less: Beginning finished goods units Value Value Required production units ? ? Six Months - COOK FARM SUPPLY COMPANY Direct Materials Budget - Gumm For the Six Months Ending June 30, 2017 Quarter 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.) Value Value Total 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 ? - ? ? Six Months COOK FARM SUPPLY COMPANY Direct Labor Budget For the Six Months Ending June 30, 2017 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 $16 X $16 Total direct labor cost ? ? ? COOK FARM SUPPLY COMPANY Selling and Administrative Budget For the Six Months Ending June 30, 2017 Quarter 2 Value Value 15% 15% ? ? Six Months Budgeted sales in dollars Variable (.15 x sales) Fixed Total 2 ? ? COOK FARM SUPPLY COMPANY Budgeted Income Statement For the Six Months Ending June 30, 2017 Sales revenue Cost of goods sold Gross Profit Selling and administrative expenses Income from operations Interest expense Income before income tax Income tax expense (30%) Net income ? Value ? Value ? ? ? 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