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, 28,600 bags; quarter 2, 42,600 bags. The selling price is $63 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 $1.75 per pound.
3. Desired inventory levels:
|Type of Inventory||January 1||April 1||July 1|
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 $176,000 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 $300,000 in quarter 1 and $422,500 in quarter 2.
(a) Prepare the sales budget.
(b) Prepare the production budget.
Companies complete budgets in advance to estimate what their sales and costs will be for a period of time. The sales budget is the first one that has to be completed. Based on the results of the sales budget a production budget can be completed.
Answer and Explanation: 1
The sales budget will show the unit sales and total sales dollars for each quarter and the six month total.
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fromChapter 11 / Lesson 5
Learn about the production budget and understand how it is used. Explore what is included in a production budget and study a production budget example.