Accounting

Problem P9-1A Zelmer 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 2012.

1. Sales: Quarter 1 28,000 bags; Quarter 2 42,000 bags. Selling price is $60.00

per bag.

2. Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4.00

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) 8,000 12,000 18,000

Gumm (pounds) 9,000 10,000 13,000

Tarr (pounds) 14,000 20,000 25,000

4. Direct labor: Direct labor time is 0.25 hours (15 minutes) per bag at an hourly rate of $14.00

per hour.

5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 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 that cost of Tarr purchases to be

$297,000 in quarter 1 and $439,500 in quarter 2.

Instructions:

Prepare the budgeted income statement for the first 6 months and all required operating budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget.) Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.

ZELMER FARM SUPPLY COMPANY

Sales Budget

For the Six Months Ending June 30, 2012

Quarter 6 Months

1 2

Expected Unit Sales 28,000 42,000 70,000

Unit Selling Price $60 $60 $60

Total Sales $1,680,000 $2,520,000 $4,200,000

ZELMER FARM SUPPLY COMPANY

Production Budget

For the...