Zelmer 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 2012.
Sales: Quarter 1, 28,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag.
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.
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
Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.
Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
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 $439,500 in quarter 2.
Complete the budgeted income statement for the first 6 months and all required supporting budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget). (Round unit cost to 2 decimal places e.g. 25.75. Show time as a percent e.g. 45 minutes is .75. Enter all amounts as positive amounts and subtract where necessary.)
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