1. Sales: Quarter 1, 40,000 bags; Quarter 2, 55,000 bags. Selling Price is $60 per bag.
2. Direct materials: each bag of Basic II requires 6 pounds of Crup at a cost of $3 per pound and 10 pounds of Dert at $1.50 per pound.
3. Desired inventory levels:
Type of inventory January 1 April 1 July 1
Basic II (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 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 material budget for Dirt which shows the cost of Dirt to be $682,500 in quarter 1 and $907,500 in quarter 2.
Instruction: prepare the budgeted income statement for the first 6 months of 2005 and all required supporting 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.