Krause Farm Supply Company manufactures and sells a fertilizer called Basic II. The following data are available

Question:

Krause Farm Supply Company manufactures and sells a fertilizer called Basic II. The following data are available for preparing budgets for Basic II for the first 2 quarters of 2010 .

1. Sales: Quarter 1, 40,000 bags; quarter $2,60,000$ bags. Selling price is $\$ 60$ per bag.

2. Direct materials: Each bag of Basic II requires 6 pounds of Crup at a cost of $\$ 4$ per pound and 10 pounds of Dert at $\$ 1.50$ per pound.

3. Desired inventory levels:

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4. Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $\$ 12$ per hour.
5. Selling and administrative expenses are expected to be $10 \%$ of sales plus $\$ 150,000$ 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 $100 \%$ of direct labor cost. (2) The direct materials budget for Dert which shows the cost of Dert purchases to be $\$ 682,500$ in quarter 1 and $\$ 982,500$ in quarter 2.
Instructions:
Prepare the budgeted income statement for the first 6 months of 2010 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 Dert.