Problem 23-1A

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 1,28,400bags; quarter 2,44,000bags. Selling price is $62per bag.2.Direct materials: each bag of Snare requires4pounds of Gumm at a cost of $3.8per pound and6pounds of Tarr at $1.50per pound.3.Desired inventory levels:

Type of Inventory

January 1

April 1

July 1

Snare (bags)8,10012,50018,300Gumm (pounds)9,10010,40013,100Tarr (pounds)14,30020,20025,400

4.Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $14per hour.5.Selling and administrative expenses are expected to be 15% of sales plus $180,000per 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 $301,000in quarter 1 and $427,500in quarter 2.

(Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)