Mercer 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 2014.
1. Sales: quarter 1, 40,000 bags; quarter 2, 50,000 bags. Selling price is $63 per bag.
2. Direct materials: each bag of Basic II requires 5 pounds of Crup at a cost of $3.80 per pound and 10 pounds of Dert at $1.50 per pound.
3. Desired inventory levels:

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 to be $682,500 in quarter 1 and $832,500 in quarter 2.

Instructions
Prepare the budgeted income statement for the first 6 months of 2014 and all required supporting budgets by quarters. Do not prepare the manufacturing overhead budget or the direct materials budget forDert.

Transcribed Image Text:

Type of Inventory Basic II (bags) Crup (pounds) Dert (pounds) January 10,000 9,000 15,000 April 1 15,000 20,000 12,000 15,000 20,000 25,000 July 1