P22-1A Prepare budgeted income statement and supporting budgets. 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, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 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) 8,000 15,000 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 $16 per hour. 5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 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 $297,000 in quarter 1 and $439,500 in quarter 2. Instructions Prepare the budgeted multi-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. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . COOK FARM SUPPLY COMPANY Sales Budget For the Six Months Ending June 30, 2020 Quarter Six 1 2 Months Expected unit sales Value Value ? Unit selling price $60 $60 $60 Total sales ? ? ? COOK FARM SUPPLY COMPANY Production Budget For the Six Months Ending June 30, 2020 Quarter Six 1 2 Months Expected unit sales Value Value Add: Desired ending finished goods units Value Value Total required units ? ? Less: Beginning finished goods units Value Value Required production units ? ? ? COOK FARM SUPPLY COMPANY Direct Materials Budget - Gumm For the Six Months Ending June 30, 2020 Quarter Six 1 2 Months Units to be produced Value Value Direct materials per unit (lbs.) X 4lbs X 4lbs Total pounds needed for production ? ? Add: Desired ending direct materials (lbs.) Value Value Total materials required ? ? Less: Beginning direct materials (lbs.) Value Value Direct materials purchases ? ? Cost per pound X $3.80 X $3.80 Total cost of direct materials purchases ? ? ? COOK FARM SUPPLY COMPANY Direct Labor Budget For the Six Months Ending June 30, 2020 Quarter Six 1 2 Months Units to be produced Value Value Direct labor hours per unit X 1/4 X 1/4 Total required direct labor hours ? ? Direct labor cost per hour X $16 X $16 Total direct labor cost ? ? ? COOK FARM SUPPLY COMPANY Selling and Administrative Budget For the Six Months Ending June 30, 2020 Quarter Six 1 2 Months Budgeted sales in units Value Value ? Variable (.15 x sales) Value Value ? Fixed Value Value ? Total ? ? ? COOK FARM SUPPLY COMPANY Budgeted Income Statement For the Six Months Ending June 30, 2020 Sales revenue ? Cost of goods sold ? Gross Profit ? Selling and administrative expenses Value Income from operations ? Interest expense Value Income before income tax ? Income tax expense (30%) ? Net income ? Cost per Bag Cost Element Quantity Unit Cost Total Direct Materials Gumm 4 pounds Value ? Tarr 6 pounds Value ? Direct Labor 1/4 hour Value ? Manufacturing overhead ? (125% of direct labor cost) Total ? After you have completed P22-1A consider the following additional question. 1. Assume that the expected unit sales in Quarter 1 changed to 36,000 bags of Snare. Also assume that the amount of direct material (Gumm) used changed to 5 pounds per bag; and, that the direct labor rate changed to $18 per hour. Revise the budgets and budgeted income statement to reflect these changes.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
P22-1A Prepare |
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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, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 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) | 8,000 | 15,000 | 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 $16 per hour. | ||||||
5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 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 $297,000 in quarter 1 and $439,500 in quarter 2. | ||||||
Instructions | ||||||
Prepare the budgeted multi-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. | ||||||
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . | ||||||
COOK FARM SUPPLY COMPANY | ||||||
Sales Budget | ||||||
For the Six Months Ending June 30, 2020 | ||||||
Quarter | Six | |||||
1 | 2 | Months | ||||
Expected unit sales | Value | Value | ? | |||
Unit selling price | $60 | $60 | $60 | |||
Total sales | ? | ? | ? | |||
COOK FARM SUPPLY COMPANY | ||||||
Production Budget | ||||||
For the Six Months Ending June 30, 2020 | ||||||
Quarter | Six | |||||
1 | 2 | Months | ||||
Expected unit sales | Value | Value | ||||
Add: Desired ending finished goods units | Value | Value | ||||
Total required units | ? | ? | ||||
Less: Beginning finished goods units | Value | Value | ||||
Required production units | ? | ? | ? | |||
COOK FARM SUPPLY COMPANY | ||||||
Direct Materials Budget - Gumm | ||||||
For the Six Months Ending June 30, 2020 | ||||||
Quarter | Six | |||||
1 | 2 | Months | ||||
Units to be produced | Value | Value | ||||
Direct materials per unit (lbs.) | X 4lbs | X 4lbs | ||||
Total pounds needed for production | ? | ? | ||||
Add: Desired ending direct materials (lbs.) | Value | Value | ||||
Total materials required | ? | ? | ||||
Less: Beginning direct materials (lbs.) | Value | Value | ||||
Direct materials purchases | ? | ? | ||||
Cost per pound | X $3.80 | X $3.80 | ||||
Total cost of direct materials purchases | ? | ? | ? | |||
COOK FARM SUPPLY COMPANY | ||||||
Direct Labor Budget | ||||||
For the Six Months Ending June 30, 2020 | ||||||
Quarter | Six | |||||
1 | 2 | Months | ||||
Units to be produced | Value | Value | ||||
Direct labor hours per unit | X 1/4 | X 1/4 | ||||
Total required direct labor hours | ? | ? | ||||
Direct labor cost per hour | X $16 | X $16 | ||||
Total direct labor cost | ? | ? | ? | |||
COOK FARM SUPPLY COMPANY | ||||||
Selling and Administrative Budget | ||||||
For the Six Months Ending June 30, 2020 | ||||||
Quarter | Six | |||||
1 | 2 | Months | ||||
Budgeted sales in units | Value | Value | ? | |||
Variable (.15 x sales) | Value | Value | ? | |||
Fixed | Value | Value | ? | |||
Total | ? | ? | ? | |||
COOK FARM SUPPLY COMPANY | ||||||
Budgeted Income Statement | ||||||
For the Six Months Ending June 30, 2020 | ||||||
Sales revenue | ? | |||||
Cost of goods sold | ? | |||||
Gross Profit | ? | |||||
Selling and administrative expenses | Value | |||||
Income from operations | ? | |||||
Interest expense | Value | |||||
Income before income tax | ? | |||||
Income tax expense (30%) | ? | |||||
Net income | ? | |||||
Cost per Bag | ||||||
Cost Element | Quantity | Unit Cost | Total | |||
Direct Materials | ||||||
Gumm | 4 pounds | Value | ? | |||
Tarr | 6 pounds | Value | ? | |||
Direct Labor | 1/4 hour | Value | ? | |||
Manufacturing overhead | ? | |||||
(125% of direct labor cost) | ||||||
Total | ? | |||||
After you have completed P22-1A consider the following additional question. | ||||||
1. | Assume that the expected unit sales in Quarter 1 changed to 36,000 bags of Snare. Also assume that | |||||
the amount of direct material (Gumm) used changed to 5 pounds per bag; and, that the direct labor rate | ||||||
changed to $18 per hour. Revise the budgets and budgeted income statement to reflect these changes. | ||||||
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