Reference no: EM133503405
Case: Pharoah 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 2025.
1. Sales: quarter 1. 28,600 bags; quarter 2. 42.600 bags. Selling price is $62 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)
|
8,100
|
12,400
|
18,500
|
Gumm (pounds)
|
9,100
|
10,300
|
13.200
|
Tarr (pounds)
|
14,300
|
20.300
|
25,500
|
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 $177,000 per quarter.
6. Interest expense is $100,000 for the 2 quarters.
7. Income taxes are expected to be 20% 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 $299,000 in quarter 1 and $425,500 in quarter 2.
Question 1: Prepare the sales budget.
Question 2: Prepare the production budget.