P23-1BMercer 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 2017.

1. Sales: quarter 1, 40,000 bags; quarter 2, 50,000 bags. Selling price is $63 per bag.
2. Direct materials: each bag of Basic II requires 5 pounds of Crup at a cost of $3.80 per pound and 10 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: direct labor time is 15 minutes per bag at an hourly rate of $12 per hour.
5. Selling and admin expenses are expected to be 10% of sales plus $150,000 per quarter.
6. Interest expense is $70,000.
7. Income taxes are expected to be 30% of income before income taxes.

Your assistant has prepared two budgets:

(1) The mtg overhead budget shows expected costs to be 100% of direct labor cost.

(2) The direct materials budget for Dert which shows the cost $682,500 in quarter 1

and $832,500 in quarter 2.

Instructions

Prepare the budgeted multiple-step income statement for the first 6 months of 2017 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 for Dert.

Selling & Admin Budget

For the Six Months Ending June 30, 2017

	1st Qtr	2nd Qtr	Six Months
Budgeted Sales in Units	40,000	50,000	90,000
Variable (.10 x sales)
Fixed
Total

Budgeted Income Statement

For the Six Months Ending June 30, 2017

Sales
Gross Profit
Interest Expense
Income Before Income Taxes
Net Income

Cost Per Bag

Cost Element	Quantity	Unit Cost	Total
Direct Materials: Crup
Dert
Direct Labor
Mfg Overhead (100% of Dir Lbr Cost)	- - -	- - -
Total	- - -	- - -