Cornwall Farm Supply manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2020.

1. Sales: quarter 1, 40,000 bags; quarter 2, 56,000 bags. Selling price is £60 per bag.

2. Direct materials: each bag of Snare requires 4 kilograms of Gumm at a cost of £3.80 per kilogram and 6 kilograms of Tarr at £1.50 per kilogram.

3. Desired inventory levels:

4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of £16 per hour.

5. Selling and administrative expenses are expected to be 15% of sales plus £175,000 per quarter.

6. Interest expense is £100,000 for the 2 quarters.

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

Instructions

Prepare the budgeted multiple-step 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.

Transcribed Image Text:

Type of Inventory Snare (bags) Gumm (kilograms) Tarr (kilograms) January 1 July 1 April 1 8,000 15,000 18,000 9,000 14,000 10,000 20,000 13,000 25,000