Question: 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.
1. Sales: quarter 1, 29,800 bags; quarter 2, 42,400 bags. Selling price is $62 per bag.
2. 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.
3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) 8,300 12,400 18,100 Gumm (pounds) 9,300 10,500 13,300 Tarr (pounds) 14,300 20,400 25,400
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 $178,000 per quarter.
6. Interest expense is $100,000.
7. Income taxes are expected to be 30% 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 $300,000 in quarter 1 and $426,500 in quarter 2.
Assignment: Prepare the budgeted multiple-step income statement for the first 6 months.