Question

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:

GERARD TIRE COMPANY Balance Sheet December 31, 2018 Assets Current Assets: Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Total Current Assets S 56,000 20,000 5,100 9,900 S91,000 Property, Plant, and Equipment: Equipment Less: Accumulated Depreciation 194,000 (42,000) 2,000 Total Assets S 243,000 Liabilities Current Liabilities: Accounts Payable 8,000 Stockholders' Equity $120,000 15,000 Common Stock, no par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 235,000 S 243,000

Other data for Gerard Tire Company:

1. 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.

2. Finished Goods Inventory on December 31, 2018, consists of 300 tires at $33 each.

3. 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.

4. Raw Materials Inventory on December 31, 2018, consists of 600 pounds of rubber compound used to manufature the tires.

5. Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $8.50 per pound.

6. Desired ending Raw Materials Inventory is 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.

7. Each tire requires 0.4 hours of direct labor; direct labor costs average $12 per hour.

8. Variable manufacturing overhead is $4 per tire.

9. 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.

10. 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.

11. Variable selling and administrative expenses include supplies at 2% of sales.

12. Capital expenditures include $15,000 for new manufacturing equipment, to be purchased and paid in the first quarter.

13. 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.

14. Direct 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.

15. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

16. Income tax expense is projected at $1,500 per quarter and is paid in the quarter incurred.

17. 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 cash budget for 2019 by quarter. Required schedules and budgets include: sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, selling and administrative expense budget, schedule of cash receipts, schedule of cash payments, and cash budget. Manufacturing overhead costs are allocated based on direct labor hours. Round all calculations to the nearest dollar.

   3rd Qtr. DM purchases $34,680
   4th Qtr. total cash pmts. (before interest) $87,159

2. Prepare Gerard’s annual financial budget for 2019, including budgeted income statement and budgeted balance sheet.

Answer 1

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

Please hit LIKE button If this helped. For any further explanation, please put your query in comment, will get back to you 01020304 Full Year Q1 Next 02 Next Budgeted No of Units Selling Price Budgeted Total Sale 2300 90.05 1500 1700 90.0 5 90.0 189,000 90.0 135,000 $ 153,000 171,000 649,000 duction Budget 01 Next 02 Next Budgeted No of Units Add: Desired Ending Inventory 2300 750 1,700 2,100 690 7,200 2500 510 7,770 Less: BeFinning Invent Budgeted Production 7,890 300 7,590 300 570 1,960 1,760 2,160 . Direct Material Purchase Budget 01 02 Q3 04 Total 1,710 Budgeted Production Raw material needed per unit Total Mat Requirec Add: Desired EndinE Invento Total Need Less: Beginning Iveritury Budgeted Purchase of Raw Mat Cost per Unit of RM Budgeted Purchase of Raw Mat 5 1,760 2,160 3,520 3,920 1728 15,180 G00 780 4,828 4,228 35,938 1,920 1,408 3,680 4,080 3,192 15,180 31,280 34,680 27,1325 129,030 4. Direct Labor Bu Budgeted Production per unit Hour Total HOurs Required Per Hour Price Budgeted Direct Labor Cost 7,590 0.4 3036 1.710 1,760 2,160 0.4 12 8,208 S 8,448 9,408 510,368 536,432 5. Factory Overhead Budget: Total Budgeted Production Variable Overhead Rate Total Varlable Overhead Fixed Overhead Cash Fixed Overhead Total Overheads 6,840 S 16,770 S 6,000 S 29,610$ 6,000 23,610 S ,840 6.000 6,0006,00D-5,000 760 ,040 6,000 2,150 8,640S 6,000 5 30,360 16,770 16,770 16,770 67,08O 24,000 29,810 $30,610 31,410121,440 Cash Payment for Overheads 97.440 Fixed Overhead Rate Fixed Ovhyproduction units 12.0000

Q2 Q3 Total ariable Selling and Admin Expense Fixed Selling and Admin Expensc Cash Fixed Selling and Admin Expense-Dep 53,780 $12,960 15,950 $ 15,950 15,950 63,800 8,000 2% of Sale 2,700 5 15,950 5 2,000 $ 2,000 52,000 $ Total Budgeted Selling Expense Less: Depreclation 20,650 $ 2,000$ 18,550 21,010 21,370 21,730 84,760 -8,000 19.010 19,370 19,730 76,760 2,000 $ -2,000 S 2,000 S Payment for Sellin and Admin 7. Cost of Goods Sold Budget Per Finished goods Cost Material 12.00 S ariable Overhead Fixed Overhead Cost of Goods sold per unit 37.80 Q2 Q4 Total 300 Tires 533 Beginning Inventory Tire produced and sold during the year Budgeted COGS 9,900.00 45,360.00 $ 55,260.00 $ 9,900 64,260.00 71,820.00 79,380.00 260,820 64,260.00 71,820.00 $ 79 79,380.00 $ 270,7 9. Budgeted Income Statement: Sales Revenue Less: Cost of Goods Sold 618,000 270,720 Gross Profit 377,280 Less: Selling and Administrative Expense 84,760 Income before tax Less: Income Tax Expense Net Income 292,520 6,000 286,520 1500*4 8. Cash Budg Q1 02 03 Total Beginning Balance Add: Cash Collected against sales 56,000 $ 118,550 78,019 140,248 218,180S56,000 148,140 166,140 184,140 S 616,970 Total Available Cash 226,159 306,388 5 402,320672,970 Less: Cash disbursment for Material Purchase Direct Labor Manufacturing Overheads Selling Expense Income Tax 29,563 8,208 23,610 18,650 1,500 33,143 33,320 30,151 126,177 9,408 S 10,368 $36,432 23,810 24,610 25,410 97,440 19,010 19,370 19,730 S 76,760 6,000 1,500,501,500 Total Cash Payment Surplus/(Deficit) 15,000 96,531 $ 78,019 515,000 85,911 $ 88,208 87.159 357,809 140,248 218,180 315,161 S 315,161 ng Ending Cash Balance 78,019$ 140,248 $218,180 $ 315,161 $ 315,161

hedule of Collection from custome Credit Sale Total Receivable Last Yea Receivable 2018 Q4 Sale 20,000 121,500 S137,700 107,730 46,170 153,900 119,0709,070 17,100 5 18,900$ 4,800 148,140 $166,140 184,140 616,970 20,000 85,050 $ 36,450 96,390 41,310 121,500 137,700 153,900 70、100 2 sale Q3 Sale 4 Sale Cash Sale Budgeted Cash Receipt 51,030 13,500 5 118,550 $ 15,300 51,030 Schedule of pa Credit Pur 02 03 Total Payable Last year Payable a1 Pur 22 Pur 23 Pur 8,000 21,563 5 8,00O $35,938 $ 35,938 31,280 34,680 27,132 14,375 18,758 12,512 $ 31,280 $20,808 13,872 S34,680 516,279 S16,279 10,853 10,853 Total Payment for Pur 29,563 $ 33,143 $ 33,320 30,151 $ 126,177 $ 10. Budgeted Balance Shee Assets Cash Accounts receivable Raw materials invent Firnished goods inventor Total current assets 315,161 51,030 5,100 26,082 397,373 600 SB.50 690 $37 8D ent S194.000+S15,000$ $42,000+$24,000 $8,000$ 209,000 Less: Accumulated Dep Equipment, net Total assets 74.000$ 135,000 135,000 532,373 Liabilities and Equity Accounts payable 10,853 Total current liabilities 10,853 Total liabilities Common slock Retained earnings Total stockholders' equity Total liabilities and equity 10,853 120,000 401,520 521,520 532,373 5 $115,000+Net Income