Cook From Supply Company manufactures and sells a pesticide called Snare. The following data are preparing budgets for Snare for the first 2 quarters of 2020.
- Sales: quarter 1, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 per bag.
- 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.
- 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 - Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.
- Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
- Interest expense is $100,000.
- 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 multiple-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..
Solution
