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

Question:

Glendo 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 2014.

(a) Sales: Quarter 1, 29,500 bags; quarter 2, 42,800 bags. Selling price is $62 per bag.

(b) 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 $1.75 per pound.

(c) Desired inventory levels:

Type of inventory January 1 April 1 June 1
Snare (bags) 8,300 12,400 18,300
Gumm (pounds) 9,400 10,400 13,400
Tarr (pounds) 14,200 20,500 25,400

(d) Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.

(e) Selling and administrative expenses are expected to be 15% of sales plus $179,000 per quarter.

(f) 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 $298,000 in quarter 1 and $426,000 in quarter 2.

(1) Create Direct Materials budget

(2) Create Direct Labor Budget

(3) Prepare the Selling and Admin Budget

Direct Materials Budget:

Direct Materials Budget is prepared to estimate the level of purchases of direct materials. The level of purchases is affected by the level of beginning inventory, the estimated ending inventory, the price of each unit and the estimated sales and production. Purchase prices may also vary from estimate which results in variance.

Answer and Explanation:

(1) Create Direct Materials budget

Quarter 1 Quarter 2 Total
Sales (in units) 29,500 42,800 72,300
Ending Inventory 8,300 12,400 20,700
Beginning Inventory 0 8,300 8,300
Production 37,800 46,900 84,700


Quarter 1 Quarter 2 Total
Gumm 37,800 46,900 84,700
Direct Materials per Unit 4 4 4
Pounds Required 151,200 187,600 338,800
Ending Inventory 9,400 10,400 19,800
Beginning Inventory 0 9,400 9,400
Required Purchases-Gumm 160,600 188,600 349,200
Price per Pound 1.75 1.75 1.75 1.75
Purchases for Gumm 281,050 330,050 611,100


Quarter 1 Quarter 2 Total
Tarr 37,800 46,900 84,700
Direct Materials per Unit 3.8 3.8 3.8
Pounds Required 143,640 178,220 321,860
Ending Inventory 14,200 20,500 34,700
Beginning Inventory 0 14,200 14,200
Required Purchases-Tarr 157,840 184,520 342,360
Price per Pound 1.75 1.75 1.75 1.75
Purchases for Tarr 276,220 322,910 599,130


Total Direct Materials Purchases 557,270 652,960 1,210,230

(2) Create Direct Labor Budget

Quarter 1 Quarter 2 Total
Production 37,800 46,900 84,700 84,700
Direct Labor Minutes Per Unit 15 15 15
Total Required Minutes 567,000 703,500 1,270,500
Divided by: 60 60 60
Required Hours 9,450 11,725 21,175
Rate per Hour 16 16 16
Direct Labor Cost 151,200 187,600 338,800


(3) Prepare the Selling and Admin Budget

Quarter 1 Quarter 2 Total
Sales (in units) 29,500 42,800 72,300
Selling Price 62 62 62
Total Sales 1,829000 2,653,600 4,482,600
Variable Selling and Admin Rate 15% 15% 15%
Variable Selling and Admin 274,350 398,040 672,390
Fixed Selling and Admin 179,000 179,000 358,000
Total Selling and Admin 453,350 577,040 1,030,390

Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

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