Cook 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 2017.
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1.
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Sales: quarter 1, 29,300 bags; quarter 2, 42,400 bags. Selling price is $63 per bag.
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2.
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Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.8 per pound and 6 pounds of Tarr at $1.50 per pound.
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3.
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Desired inventory levels:
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Type of Inventory
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January 1
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April 1
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July 1
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Snare (bags)
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8,500
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12,200
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18,500
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Gumm (pounds)
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9,300
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10,400
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13,100
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Tarr (pounds)
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14,400
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20,500
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25,300
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4.
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Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.
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5.
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Selling and administrative expenses are expected to be 15% of sales plus $176,000 per quarter.
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6.
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Interest expense is $100,000.
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7.
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Income taxes are expected to be 30% of income before income taxes.
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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 $298,000 in quarter 1 and $423,500 in quarter 2.
Prepare the production budget.