Problem 9-1A

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, 29,200 bags; quarter 2, 43,200 bags. Selling price is $61 per bag.
2.		Direct materials: each bag of Snare requires 5 pounds of Gumm at a cost of $3.8 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)		8,400		12,200		18,200
Gumm (pounds)		9,200		10,200		13,500
Tarr (pounds)		14,300		20,400		25,400

4.		Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.
5.		Selling and administrative expenses are expected to be 15% of sales plus $180,000 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 $301,000 in quarter 1 and $425,500 in quarter 2. (Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

COOK FARM SUPPLY COMPANY Direct Materials Budget-Gumm For the Six Months Ending June 30, 2017 Quarter Six Months 2 Units to be Produced Direct Materials per Unit Total Pounds Needed for Production Add Desired Ending Direct Materials Total Materials Required Less Beginning Direct Materials Direct Materials Purchases Cost per Pound Total Cost of Direct Materials Purchases