# 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

 8,300 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 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:

Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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