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Happy Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2021. (1) Sales: Quarter 1, 35,000 bags; Quarter 2, 50,000 bags. Selling price is $60 perbag. (i) Direct materials: Each bag of Snare requires 5 pounds of Gumm at a cost of $3per pounds and 8 pounds of Tarr at $1.50 per pound. Desired finished goods and material inventories levels: There will be 8,000 bags of Snare as of 1 January 2021. The management plannedto have 4,000 bags more (in comparison with the inventory level at the beginningof the year) of Snare in the store as of 31 March 2021. The company intends to maintain 6,000 bags more (in comparison with the inventory level as at 1 April 2021) of Snare as of 30 June 2021. As of 31 December 2020, there will be 9,000 pounds of Gumm material in the store. At the end of quarter 1, the company planned to keep 1,000 pounds moreof Gumm material than the inventory level at the beginning of quarter 1. At the endof quarter 2, Happy planned to keep 3,000 pounds more of Gumm material than the inventory level at the beginning of quarter 2. (iv) Direct labour: Direct labour time is 15 minutes per bag at an hourly rate of $12 perhour. (v) Selling and administrative expenses are expected to be 8% of sales plus $175,000 per quarter. (vi) The income tax rate is 30%. Required: Prepare the following quarterly budgets for the first half of 2021 and the budget for firstsix months ended 30 June: (a) Sales budget (1.5 marks) (b) Production budget. (6.5 marks) (c) Gumm material purchase budget in pounds and in $. (7 marks) (d) Direct labour budget in hours and in $. (3 marks) (e) Selling and administration expenses budget. (3 marks) (f) Discuss whether setting more-challenging budget targets can always motivate staffs. (9 marks)

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