Danner Farm Supply Company manufactures and sells a pesticide called Snare. The following

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P7-1A:

Danner 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 2009.

Prepare budgeted income statement and supporting budgets.

1. Sales: Quarter 1, 28,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag.

2. Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4 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

12,000

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 $14 per hour.

5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.

6. Income taxes are expected to be 30% of income from operations.

Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (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 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.

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