Monday 1 October 2012

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

Problem 23-1A


Greene 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 2013.

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 $421,500 in quarter 2.


 

Prepare the sales budget.

Prepare the production budget.

Prepare the direct materials budget for Gumm.

Prepare the direct labor budget. (Round hours per unit to 2 decimal places, e.g. 0.20.)

Prepare the selling and administrative expense budget. (Note: Use variable and fixed in the selling and administrative expense budget.)

Compute the cost per bag. (Round Unit cost to 2 decimal places, e.g. $25.28.)

Prepare the budgeted income statement for the first 6 months.

 



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