The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells t
ID: 2418260 • Letter: T
Question
The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year by developing a master budget by quarters. Grilton’s balance sheet for December 31, 2016 follows:
GRILTON TIRE COMPANY Balance Sheet December 31, 2016
Other data for Grilton Tire Company:
a. Budgeted Sales are 1,500 for the first quarter and expected to increase by 200 tires per quarter. Cash Sales are expected to be 30% of total sales, with the remaining 70% of
sales on account.
b. Finished Goods Inventory on December 31, 2016 consists of 300 tires at $29 each.
c. Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2018 are expected to be 2,300 tires and second quarter sales for 2018 are expected to be 2,500. FIFO inventory costing method is used.
d. Direct Materials cost is $8 per tire.
e. Desired ending Raw Materials Inventory is 30% of the next quarter’s direct materials needed for production.
f. Each tire requires 0.40 hours of direct labor; direct labor costs average $16 per hour.
g. Variable manufacturing overhead is $2 per tire produced.
h. Fixed manufacturing overhead includes $4,500 per quarter in depreciation and $26,780 per quarter for other costs, such as utilities, insurance, and property taxes.
Fixed selling and administrative expenses include $8,000 per quarter for salaries; $1,800 per quarter for rent; $1,200 per quarter for insurance; and $500 per quarter for depreciation. j. Variable selling and administrative expenses include supplies at 2% of sales.
k. Capital expenditures include $45,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
l. Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale; December 31, 2016, Accounts Receivable is received in the first quarter of 2017.
m. Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter; December 31, 2016, Accounts Payable is paid in the first quarter of 2017.
n. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
o. Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.
p. Grilton desires to maintain a minimum cash balance of $35,000 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:
4. Prepare a direct materials budget for each quarter and in total forthe year 2017.
5. Prepare a schedule of expected cash disbursements for purchases ofmaterials for each quarter and in total of the year 2017.
6. Prepare a budgeted Schedule of Cost of Goods Manufactured forthe year of 2017.
Please show working as chart.
Assets Current Assets: Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Total Current Assets 39,000 40,000 2,400 8,700 90,100 Property, Plant and Equipment: Equipment Less: Accumulated Depreciation 177,000 42,000 135,000 Total Assets 225,100 Current Liabilities: Accounts Payable 8,000 lder's Eq Common Stock, no par Retained Earnings $130,000 87,100 Total Stockholder's Equity Total Libilties and Stockholder's Equity 217,100 $225,100Explanation / Answer
After sales and purchase budget answer 4,5,6 givenand Mount $ For the three month period ending on 31 dec 2017 a) sales Budget Qtr 1 Qtr 2 QTr 3 Qtr 4 Total Qtr 1 2018 Sales in units C 1500 1700 1900 2100 7200 2300 Sale price 50 50 50 50 50 Sales 75000 85000 95000 105000 255000 C) Purchase Budget Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 2018 Opening Inventory A 300 680 760 840 2580 920 Purchases P=C+B-A 1880 1780 1980 2180 7820 2380 Closing Inventory (40% of following Qtr sales) B 680 760 840 920 3200 1000 1700*.4 1900*.4 2100*.4 2300*.4 2500*.4 Ans 4 Direct material Budget Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Opening Material Inventory D (1880*.3) 564 534 594 654 2346 Purchases P+E-D 1850 1840 2040 2240 7970 Closing material Inventory (30% of Purchases of next QTR i.e P) E 534 594 654 714 2496 1780*.3 1980*.3 2180*.3 2380*.3 Material Purchase price 8 8 8 8 Cost of purchases F 15040 14240 15840 17440 62560 Ans 5 Schedule of Cash Disbursements Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Paid 70% in same qtr F*.7 10528 9968 11088 12208 43792 30% in next qtr 8000 4512 4272 3984 20768 15040*.3 14240*.3 15840*.3 Total 18528 14480 15360 16192 64560 Schedule of Cost of Good manufactured Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total No. Of Tires Produced 1880 1780 1980 2180 Direct Material 15040 14240 15840 17440 62560 Direct Labour hours (.4*$16*no.of Tires manufactured) 12032 11392 12672 13952 50048 Variable Manufacturing Overhead ($2*no.of tires) 3760 3560 3960 4360 15640 Fixed manufacturing Cost-Depreciation 4500 4500 4500 4500 18000 Fixed manufacturing Cost-Others 26780 26780 26780 26780 107120 Cost Of good Manufactured 63992 62252 65732 69212 253368
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