P9-1A 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	January 1	April 1	July 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
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		Six
		1	2	Months
Expected unit sales		Value	Value	?
Unit selling price		$60	$60	$60
Total sales		?	?	?
COOK FARM SUPPLY COMPANY
Production Budget
For the Six Months Ending June 30, 2017
		Quarter		Six
		1	2	Months
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		?	?	?
COOK FARM SUPPLY COMPANY
Direct Materials Budget - Gumm
For the Six Months Ending June 30, 2017
		Quarter		Six
		1	2	Months
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		?	?	?
COOK FARM SUPPLY COMPANY
Direct Labor Budget
For the Six Months Ending June 30, 2017
		Quarter		Six
		1	2	Months
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		Six
		1	2	Months
Budgeted sales in units		Value	Value	?
Variable (.15 x sales)		Value	Value	?
Fixed		Value	Value	?
Total		?	?	?
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		Value
Income from operations		?
Interest expense		Value
Income before income tax		?
Income tax expense (30%)		?
Net income		?
	Cost per Bag
	Cost Element	Quantity	Unit Cost	Total
	Direct Materials
	Gumm	4 pounds	Value	?
	Tarr	6 pounds	Value	?
	Direct Labor	1/4 hour	Value	?
	Manufacturing overhead			?
	(125% of direct labor cost)
	Total			?
After you have completed P9-1A 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.