1244 chapter 22 Learning Objectives 3,4 P22-41A Completing a comprehensive budgeting problem--manu anufacturing company 1. 3rd Qtr. DM purchases $ 34,680 4th Cer total cash pmts (before The Gerard Tiee Compaey manufactures racing tires for bicycdes, G for $90 each. Gerard is planning for the nest year by developing a master quarters. Gerard's Gerard sells tires interest) $87,159 balance sheet for December 31, 2018, follorw GERARD TIRE COMPANY Balance Sheet December 31, 2018 Assets Current Assets %56.000 20,000 5, 100 8 900 Accounts Receivable Raw Materials Inventory Finiuhed Goods Irrventory Total Current Assets 5 91,000 Property, Plant, and Equipment 94,000 42,001 152,000 900 Less: Accumulated Depredation Total Assets 5 243,000 Liabilities Current Liabilities Accounts Payable 5 8,000 Stockholders' Equity 5 120,000 115,000 Common Stock, no par Retained Eamings Total Stockholders Equity Total Liabilities and Stockholders' Equity 235.00 5 243,000 Other data for Gerard Tire Company a. Badgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are cxpected 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 tres at $33 each. c. Desired cnding Finished Gonds Inventory is 30% of the next quarter's sales; first quarter sales for 2120 are expected to be 2,300 tires. FIFO inventory costing method is used. d. Raw Matcrials Inventory on December 31, 2018, consists of 600 pounds of rub ber compound used to manufature the tires e. Direct materials requirements are 2 pourds of a rubber compound per tire. The cost of the compound is $8.50 per pound. Master Budgets 1245 f, Desired ending Raw Materials Inventory is 40% of the next 'parter's direct materials needed for production; desired ending inventory for December 31, 2019 is 600 pounds; indireet materials are insignificant and not considered for budgeting purposes g Each tire requires 0.4 hours of direct lat R or, direet labor costs average $12 per hour. h. Variable manufacturing overhead is $4 per tire. i. Fixed manufacturing overhcad inclades $6,000 per quarter in depreciation j. Fixed selling and administrative expenses include $12,500 per quarter for salarics k. Variable selling and administrative expenses include supplies at 2% of sales and $16,770 per quarter for other costs, such as utilitics, insurance, property taxes $3,000 per quarter for rent; $450 per quarter for insurance, and $2000 per quarter for depreciation. . Capital expenditures 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 one 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. 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. n. 9 o. Direct labor, manufacturing overhead, and selling and administrative costs are paid p. Income tax expense is projected at $1,500 per quarter and is paid in the quarter q. Gerard desires to maintain a minimum cash balance of $55,000 and borrows in the quarter incurred incurred 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 S 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 Gerards 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. Prepare Gerard's annual financial budget for 2019, including badgeted income statement and budgeted balance sheet 2