Budget Problem 2

Tilger Farm Supply Company manufactures and sells a fertilizer called Basic2. The following data are available for preparing budgets for Basic2 for the first two quarters of 2005.

1. Sales: Quarter 1: 40,000 bags; Quarter 2: 55,000 bags. Selling price is $60 per bag.

2. Direct Materials: Each bag of Basic2 requires 6 pounds of Crup at a cost of $3 per pound, and 10 pounds of Dert at $1.50 per pound.

3. Desired inventory levels:

Type of Inventory

Jan 1

Apr 1

Jul 1

Basic2 (bags) 10,000 15,000 20,000
Crup (pounds) 9,000 12,000 15,000
Dert (pounds) 15,000 20,000 25,000

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 30% of income from operations.

7. Manufacturing Overhead is 100% of Direct Labor cost.

Prepare the following budgets for the first and second quarter of 2005:

Sales Budget

Production Budget (Basic2)

Direct Materials Budgets for Crup and Dert

Direct Labor Budget

Selling and Administrative Budget

Budgeted Income Statement (Hint: figure out the cost per bag of Basic2)