Project Two: Master Budget

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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.

1.

Sales: quarter 1, 28,200 bags; quarter 2, 43,400 bags. Selling price is $63 per bag.

2.

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.

3.

Desired inventory levels:

Type of Inventory

January 1

April 1

July 1

Snare (bags)

8,100

12,500

18,300

Gumm (pounds)

9,100

10,200

13,100

Tarr (pounds)

14,200

20,500

25,500

4.

Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.

5.

Selling and administrative expenses are expected to be 15% of sales plus $177,000 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 $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.)