GRILTON TIRE COMPANY

Balance Sheet

December 31, 2019

Assets

Current Assets:

Cash $ 39,000

Accounts Receivable 40,000

Raw Materials Inventory 2,400

Finished Goods Inventory 8,700

Total Current Assets $ 90,100

Property, Plant and Equipment:

Equipment 177,000

Less: Accumulated Depreciation (42,000) 135,000

Total Assets $225,100

Liabilities

Current Liabilities:

Accounts Payable $ 8,000

Stockholders Equity

Common Stock, no par $ 130,000

Retained Earnings 87,100

Total Stockholders Equity 217,100

Total Liabilities and Stockholders Equity $225,100

Other data for Grilton Tire Company:

1. 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.
2. Finished Goods Inventory on December 31, 2019 consists of 300 tires at $29 each.
3. Desired ending Finished Goods Inventory is 40% of the next quarters sales; first quarter sales for 2020 are expected to be 2,300 tires and second quarter sales for 2020 are expected to be 2,500. FIFO inventory costing method is used.
4. Direct Materials cost is $8 per tire.
5. Desired ending Raw Materials Inventory is 30% of the next quarters direct materials needed for production.
6. Each tire requires 0.40 hours of direct labor; direct labor costs average $16 per hour.
7. Variable manufacturing overhead is $2 per tire produced.
8. 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.
9. 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.
10. Variable selling and administrative expenses include supplies at 2% of sales.
11. Capital expenditures include $45,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
12. Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale. The December 31, 2019 Accounts Receivable ($40,000) is received in the first quarter of 2020.
13. Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter. The December 31, 2019 Accounts Payable ($8,000) is paid in the first quarter of 2020.
14. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
15. Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.
16. 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. Interest must be paid at the beginning of each quarter.

REQUIREMENTS:

1. Prepare a sales budget in units and dollars for each quarter and in total for the year 2020. (5 pts.)
2. Prepare a schedule of expected cash collections for each quarter and in total for the year 2020. (10 pts.)
3. Prepare a production budget for each quarter and in total for the year 2020. (10 pts.)
4. Prepare a direct materials budget for each quarter and in total for the year 2020. (10 pts.)
5. Prepare a schedule of expected cash disbursements for purchases of materials for each quarter and in total of the year 2020. (10 pts.)
6. Prepare a budgeted Schedule of Cost of Goods Manufactured for the year of 2020. (5 pts.)
7. Prepare a budgeted Income Statement for the year of 2020 (10 pts.)
8. Prepare a cash budget for the year of 2020. (15 pts.
9. Essay: What types of information do your budgets yield? Is cash flow adequate? Do sales need to be increased, costs reduced? Etc.. ( 5 pts.)

SALES BUDGET 1 2 3 4 Year 1 2 Sales in units x Selling price Total Sales SCHEDULE OF EXPECTED CASH COLLECTIONS 1 2 3 4 Year 4th Quarter 2019 Cash Sales 1st Quarter 2020 2nd Quarter 2020 3rd Quarter 2020 4th Quarter 2020 Totals PRODUCTION BUDGET 1 2 3 Year 1 2 Sales in units Add desired units of ending Fin. Goods Inv. Total needs Less: units of beg. Fin. Goods Inv. Required production in units DIRECT MATERIALS BUDGET 1 2 3 4 Year 1 Required production in units x $8.00 per unit Total cost of production needs Add: Desired cost of ending raw material Inventory Total cost of raw materials needed Less: cost of beginning raw materials inventory Cost of raw materials to be purchased SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR PURCHASES OF MATERIALS 1 2 3 4 Year AIP, Dec. 31, 2019 1st Quarter 2020 2nd Quarter 2020 3rd Quarter 2020 4th Quarter 2020 Totals DIRECT LABOR BUDGET 1 2 3 4 Year Total production units x Direct labor hours per unit Total direct labor hours x Direct labor cost per hour Total direct labor cost MANUFACTURING OVERHEAD BUDGET 1 2 3 4 Year Variable Overhead Costs: Units of production x Variable Overhead Rate Total Variable Overhead Fixed Overhead Costs: Depreciation Other Total Fixed OH costs Total Manu. OH costs Less Depreciation Manufacturing Overhead paid in cash COST OF GOODS MANUFACTURED BUDGET Direct Materials Used: Dir. Mat. Inv. 1/1/2020 Purchases during 2020 Materials Available Less: Dir. Mat. Inv 12/31/2020 Cost of Direct Mat. Used Direct Labor Costs Manufacturing OH costs Total Manufacturing costs Add: Beg. WIP 1/1/2020 Subtotal Less: End WIP 12/31/2020 Cost of Goods Manufactured INCOME STATEMENT For the year ended December 31, 2020 Sales Cost of Goods Sold: Fin. Goods Inv. Dec. 31,2019* Cost of Goods Manufactured Goods available for sale Less. Fin. Goods Inv. 12/31/2020** Cost of Goods Sold Gross Margin Selling and Admin. Expenses Income from Operations Interest Expense Income before Income taxes Income Tax Expense Net Income **Cost of Goods Manufactured/ Total units produced = Unit cost for CASH BUDGET For the year ended December 31, 2020 1 2 3 4 Year Beginning Cash Balance Add Cash Receipts: Collections from customers Total cash available Cash Payments: Direct Materials Direct Labor Manufacturing Overhead Selling and Administrative: Fixed Variable Capital Expenditures Income Taxes Total cash disbursements Excess (deficiency) of cash available over disbursements Cash balance before financing Financing Section: Borrowings (at the beginning of quarters) Repayments (at the beginning of quarters) elling Fixed Variable Capital Expenditures Income Taxes Total cash disbursements Excess (deficiency) of cash available over disbursements Cash balance before financing Financing Section: Borrowings (at the beginning of quarters) Repayments (at the beginning of quarters) Interest Ending Cash balance SALES BUDGET 1 2 3 4 Year 1 2 Sales in units x Selling price Total Sales SCHEDULE OF EXPECTED CASH COLLECTIONS 1 2 3 4 Year 4th Quarter 2019 Cash Sales 1st Quarter 2020 2nd Quarter 2020 3rd Quarter 2020 4th Quarter 2020 Totals PRODUCTION BUDGET 1 2 3 Year 1 2 Sales in units Add desired units of ending Fin. Goods Inv. Total needs Less: units of beg. Fin. Goods Inv. Required production in units DIRECT MATERIALS BUDGET 1 2 3 4 Year 1 Required production in units x $8.00 per unit Total cost of production needs Add: Desired cost of ending raw material Inventory Total cost of raw materials needed Less: cost of beginning raw materials inventory Cost of raw materials to be purchased SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR PURCHASES OF MATERIALS 1 2 3 4 Year AIP, Dec. 31, 2019 1st Quarter 2020 2nd Quarter 2020 3rd Quarter 2020 4th Quarter 2020 Totals DIRECT LABOR BUDGET 1 2 3 4 Year Total production units x Direct labor hours per unit Total direct labor hours x Direct labor cost per hour Total direct labor cost MANUFACTURING OVERHEAD BUDGET 1 2 3 4 Year Variable Overhead Costs: Units of production x Variable Overhead Rate Total Variable Overhead Fixed Overhead Costs: Depreciation Other Total Fixed OH costs Total Manu. OH costs Less Depreciation Manufacturing Overhead paid in cash COST OF GOODS MANUFACTURED BUDGET Direct Materials Used: Dir. Mat. Inv. 1/1/2020 Purchases during 2020 Materials Available Less: Dir. Mat. Inv 12/31/2020 Cost of Direct Mat. Used Direct Labor Costs Manufacturing OH costs Total Manufacturing costs Add: Beg. WIP 1/1/2020 Subtotal Less: End WIP 12/31/2020 Cost of Goods Manufactured INCOME STATEMENT For the year ended December 31, 2020 Sales Cost of Goods Sold: Fin. Goods Inv. Dec. 31,2019* Cost of Goods Manufactured Goods available for sale Less. Fin. Goods Inv. 12/31/2020** Cost of Goods Sold Gross Margin Selling and Admin. Expenses Income from Operations Interest Expense Income before Income taxes Income Tax Expense Net Income **Cost of Goods Manufactured/ Total units produced = Unit cost for CASH BUDGET For the year ended December 31, 2020 1 2 3 4 Year Beginning Cash Balance Add Cash Receipts: Collections from customers Total cash available Cash Payments: Direct Materials Direct Labor Manufacturing Overhead Selling and Administrative: Fixed Variable Capital Expenditures Income Taxes Total cash disbursements Excess (deficiency) of cash available over disbursements Cash balance before financing Financing Section: Borrowings (at the beginning of quarters) Repayments (at the beginning of quarters) elling Fixed Variable Capital Expenditures Income Taxes Total cash disbursements Excess (deficiency) of cash available over disbursements Cash balance before financing Financing Section: Borrowings (at the beginning of quarters) Repayments (at the beginning of quarters) Interest Ending Cash balance