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 2013.
| 1. |
|
Sales: Quarter 1, 29,800 bags; quarter 2, 43,400 bags. Selling price is $62 per bag. |
| 2. |
|
Direct materials: Each bag of Snare requires 5 pounds of Gumm at a cost of $4 per pound and 7 pounds of Tarr at $1.75 per pound. |
| 3. |
|
Desired inventory levels: |
| Type of Inventory |
|
January 1 |
|
April 1 |
|
July 1 |
| Snare (bags) |
|
8,200 |
|
12,300 |
|
18,200 |
| Gumm (pounds) |
|
9,400 |
|
10,200 |
|
13,200 |
| Tarr (pounds) |
|
14,400 |
|
20,300 |
|
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 $177,000 per quarter. |
| 6. |
|
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 $299,000 in quarter 1 and $427,000 in quarter 2.