Reference no: EM131767521

Question - Danner 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 2009.

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 $439,500 in quarter 2.

Prepare budgeted income statement and supporting budgets.

Instructions - Prepare the budgeted 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.