Concept explainers
Completing a comprehensive budgeting problem—manufacturing company
Learning Objectives 3, 4
1. 3rd Qtr. DM purchases $34,680
4th Qtr. total cash pmts. (before interest) $87,159
The Gerard Tire Company manufactures racing tires for bicycles. Gerard sells tires for $90 each. Gerard is planning for the next year by developing a
GERARD TIRE COMPANYBalance SheetDecember 31, 2018 | ||
Assets | ||
Current Assets: | ||
Cash | $56,000 | |
20,000 | ||
Raw Materials Inventory | 5,100 | |
Finished Goods Inventory | 9,900 | |
Total Current Assets | $91,000 | |
Property, Plant, and Equipment: | ||
Equipment | 194,000 | |
Less: Accumulated |
(42,000) | 152,000 |
Total Assets | $243,000 | |
Liabilities | ||
Current Liabilities: | ||
Accounts Payable | $8,000 | |
Common Stock, no par | $120,000 | |
115,000 | ||
Total Stockholders’ Equity | 235,000 | |
Total Liabilities and Stockholders’ Equity | $243,000 |
Other data for Gerard Tire Company:
a. Budgeted sales are 1,500 tires for e first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account.
b. Finished Goods inventory on December 31, 2018, consists of 300 tires at $33 each.
c. Desired ending Finished Goods Inventory 30% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,300 tires. FIFO inventory costing method is used.
d. Raw Materials Inventory on Decenter 31, 2018, consists of 600 pounds of rubber compound used to manufacture the tires.
e. Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $8.50 per pound.
f. Desired ending Raw Material Inventory 40% of the next quarter’s direct materials needed for production; desired ending inventory for December 31, 2019 is 600 pounds; indirect materials are insignificant and not considered for budgeting purposes.
g. Each tire requires 0.4 hours of directed labor; direct labor costs average $12 per hour.
h. Variable manufacturing overhead $4 per tire.
i. Fixed manufacturing overhead includes $6,000 per quarter in depreciation and $16,770 per quarter for other costs, such as utilities, insurance, and property taxes.
j. Fixed selling and administrative expenses include $12,500 per quarter for salaries; $3,000 per quarter for rent; $450 per quarter for insurance; and $2,000 per quarter for depreciation.
k. Variable selling and administrative expenses include supplies at 2% of sales.
l. Capital expenditure include $15,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
m. Cash receipts for sales on account are 70% in the quarter of the sale and 30% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes.
n. Diret materials purchases are paid 60% in the quarter purchased and 40% in the following quarter, December 31, 2018, Accounts Payable is paid in the first quarter of 2019.
o. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
p. Income tax expense is projected at $1,500 per quarter and is paid in the quarter incurred..
q. Gerard desires to maintain a minimum cash balance of $55,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 6% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.
Requirements
1. Prepare Gerard’s operating budget and
2. Prepare Gerard’s annual financial budget for 2019, including budgeted come statement and budgeted balance sheet.
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- Completing a comprehensive budgeting problem—manufacturing company The Gerard Tire Company, manufactures racing tires for bicycles. Gerard sells tires for $90 each. Gerard is planning for the next year by developing a master budget by quarters. Gerard’s balance sheet for December 31, 2018, follows: Other data for Gerard Tire Company: Budgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account. Finished Goods Inventory on December 31, 2018, consists of 300 tires at $33 each. Desired ending Finished Goods Inventory is 30% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,300 tires. FIFO inventory costing method is used. Raw Materials Inventory on December 31, 2018, consists of 600 pounds of rubber compound used to manufacture the tires. Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of…arrow_forwardMULTI COLORED PICTURE ATTACHED IS THE PART I NEED HELP WITH SECOND IS PART OF THE INFORMATION GIVEN WITH THE QUESTION The Grady Tire Company manufactures racing tires for bicycles. Grady sells tires for $70 each. Grady is planning for the next year by developing a master budget by quarters. Grady's balance sheet for Decembe 31,2018, follows: a. Budgeted sales are 1,800 tires for the first quarter and expected to increase by 50 tires per quarter. Cash sales are expected to be 20% of total sales, with the remaining 80% of sales on account. b. Finished Goods Inventory on December 31, 2018 consists of 100 tires at $36 each. c. Desired ending Finished Goods Inventory is 50% of the next quarter's sales; first quarter sales for 2020 are expected be 2,000 tires. FIFO inventory costing method is used. d. Raw Materials Inventory on December 31, 2018, consists of 200 pounds of rubber compound used to manufacture the tires. e. Direct materials requirements are 2 pounds of a rubber compound…arrow_forwardThe management accountant at Miller Merchandising & More, Odail Russell is in the process ofpreparing the cash budget for the business for the fourth quarter of 2021. It is customary for thebusiness to borrow money during this quarter. Extracts from the sales and purchases budgets areas follows:Month cash sales sales on account purchasesAugust $85,000 $640,000 $420,000September $70,000 $550,000 $550,000October $ 88,550 $ 600,000 $500,000November $77,160 $800,000 $600,000December $174,870 $500,000 $450,000 i) An analysis of the records shows that trade receivables are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90:50% in the month of sale30% in the first month following the sale20% in the second month following the sale Required The business needs to have a sense of its future cashflows and therefore requires the preparation of the following: 1. A schedule of budgeted cash collections for trade receivables (sales on account) for…arrow_forward
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