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 2020.
Sales: quarter 1, 28,200 bags; quarter 2, 43,400 bags. Selling price is $63 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.
Type of Inventory
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 $177,000 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 $303,000 in quarter 1 and $423,500 in quarter 2. (Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)
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