The Grilton Tire Company manufactures racing tires for bicycles.Grilton sells tires for $50 each. Grilton is planning for next yearby developing a master budget by quarters. Griltonâs balance sheetfor December 31, 2016 follows:
GRILTON TIRE COMPANY
Balance Sheet
December 31, 2016
Assets
Current Assets:
Cash $39,000
AccountsReceivable 40,000
Raw MaterialsInventory 2,400
Finished GoodsInventory 8,700
Total CurrentAssets $90,100
Property, Plant and Equipment:
Equipment 177,000
Less: AccumulatedDepreciation (42,000) 135,000
TotalAssets $225,100
Liabilities
Current Liabilities:
AccountsPayable $ 8,000
Stockholderâs Equity
Common Stock, nopar $ 130,000
RetainedEarnings 87,100
Total StockholderâsEquity 217,100
Total Liabilities and StockholderâsEquity $225,100
Other data for Grilton Tire Company:
Budgeted Sales are 1,500 for the first quarter and expected toincrease by 200 tires per quarter. Cash Sales are expected to be30% of total sales, with the remaining 70% of sales on account.
Finished Goods Inventory on December 31, 2016 consists of 300tires at $29 each.
Desired ending Finished Goods Inventory is 40% of the nextquarterâs sales; first quarter sales for 2018 are expected to be2,300 tires and second quarter sales for 2018 are expected to be2,500. FIFO inventory costing method is used.
Direct Materials cost is $8 per tire.
Desired ending Raw Materials Inventory is 30% of the nextquarterâs direct materials needed for production.
Each tire requires 0.40 hours of direct labor; direct laborcosts average $16 per hour.
Variable manufacturing overhead is $2 per tire produced.
Fixed manufacturing overhead includes $4,500 per quarter indepreciation and $26,780 per quarter for other costs, such asutilities, insurance, and property taxes.
Fixed selling and administrative expenses include $8,000 perquarter for salaries; $1,800 per quarter for rent; $1,200 perquarter for insurance; and $500 per quarter for depreciation.
Variable selling and administrative expenses include supplies at2% of sales.
Capital expenditures include $45,000 for new manufacturingequipment, to be purchased and paid in the first quarter.
Cash receipts for sales on account are 60% in the quarter ofsale and 40% in the quarter following the sale; December 31, 2016,Accounts Receivable is received in the first quarter of 2017.
Direct materials purchases are paid 70% in the quarter purchasedand 30% in the following quarter; December 31, 2016, AccountsPayable is paid in the first quarter of 2017.
Direct labor, manufacturing overhead, and selling andadministrative costs are paid in the quarter incurred.
Income tax expense is projected at $3,500 per quarter and ispaid in the quarter incurred.
Grilton desires to maintain a minimum cash balance of $35,000and borrows from the local bank as needed in increments of $1,000at the beginning of the quarter; principal repayments are made atthe beginning of the quarter when excess funds are available and inincrements of $1,000; interest is 6% per year and paid at thebeginning of the quarter based on the amount outstanding from theprevious quarter.
REQUIREMENTS: Prepare a budgeted Income Statement forthe year of 2017
Prepare a cash budget for the year of 2017.
What types of information do your budgets yield? Is cashflow adequate? Do sales need to be increased, costsreduced?
please show working. thanks
The Grilton Tire Company manufactures racing tires for bicycles.Grilton sells tires for $50 each. Grilton is planning for next yearby developing a master budget by quarters. Griltonâs balance sheetfor December 31, 2016 follows:
GRILTON TIRE COMPANY
Balance Sheet
December 31, 2016
Assets
Current Assets:
Cash $39,000
AccountsReceivable 40,000
Raw MaterialsInventory 2,400
Finished GoodsInventory 8,700
Total CurrentAssets $90,100
Property, Plant and Equipment:
Equipment 177,000
Less: AccumulatedDepreciation (42,000) 135,000
TotalAssets $225,100
Liabilities
Current Liabilities:
AccountsPayable $ 8,000
Stockholderâs Equity
Common Stock, nopar $ 130,000
RetainedEarnings 87,100
Total StockholderâsEquity 217,100
Total Liabilities and StockholderâsEquity $225,100
Other data for Grilton Tire Company:
Budgeted Sales are 1,500 for the first quarter and expected toincrease by 200 tires per quarter. Cash Sales are expected to be30% of total sales, with the remaining 70% of sales on account.
Finished Goods Inventory on December 31, 2016 consists of 300tires at $29 each.
Desired ending Finished Goods Inventory is 40% of the nextquarterâs sales; first quarter sales for 2018 are expected to be2,300 tires and second quarter sales for 2018 are expected to be2,500. FIFO inventory costing method is used.
Direct Materials cost is $8 per tire.
Desired ending Raw Materials Inventory is 30% of the nextquarterâs direct materials needed for production.
Each tire requires 0.40 hours of direct labor; direct laborcosts average $16 per hour.
Variable manufacturing overhead is $2 per tire produced.
Fixed manufacturing overhead includes $4,500 per quarter indepreciation and $26,780 per quarter for other costs, such asutilities, insurance, and property taxes.
Fixed selling and administrative expenses include $8,000 perquarter for salaries; $1,800 per quarter for rent; $1,200 perquarter for insurance; and $500 per quarter for depreciation.
Variable selling and administrative expenses include supplies at2% of sales.
Capital expenditures include $45,000 for new manufacturingequipment, to be purchased and paid in the first quarter.
Cash receipts for sales on account are 60% in the quarter ofsale and 40% in the quarter following the sale; December 31, 2016,Accounts Receivable is received in the first quarter of 2017.
Direct materials purchases are paid 70% in the quarter purchasedand 30% in the following quarter; December 31, 2016, AccountsPayable is paid in the first quarter of 2017.
Direct labor, manufacturing overhead, and selling andadministrative costs are paid in the quarter incurred.
Income tax expense is projected at $3,500 per quarter and ispaid in the quarter incurred.
Grilton desires to maintain a minimum cash balance of $35,000and borrows from the local bank as needed in increments of $1,000at the beginning of the quarter; principal repayments are made atthe beginning of the quarter when excess funds are available and inincrements of $1,000; interest is 6% per year and paid at thebeginning of the quarter based on the amount outstanding from theprevious quarter.
REQUIREMENTS: Prepare a budgeted Income Statement forthe year of 2017
Prepare a cash budget for the year of 2017.
What types of information do your budgets yield? Is cashflow adequate? Do sales need to be increased, costsreduced?
please show working. thanks
