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DATA: The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year (2021) by developing a master budget by quarters. Grilton's balance sheet for December 31, 2020 follows: GRILTON TIRE COMPANY Balance Sheet December 31, 2020 Assets Current Assets: Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Total Current Assets Property, Plant and Equipment: $ 39,000 40,000 2,400 8,700 $ 90,100 177,000 (42,000) Equipment Less: Accumulated Depreciation Total Assets 135,000 $225,100 Liabilities Current Liabilities: Accounts Payable $ 8,000 Stockholder's Equity $ 130,000 87.100 Common Stock, no par Retained Earnings Total Stockholder's Equity Total Liabilities and Stockholder's Equity 217,100 $225,100 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, 2020 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 2022 are expected to be 2,300 tires and second quarter sales for 2022 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. 8. 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. 1. 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. 1. Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale. The December 31, 2020 Accounts Receivable ($40,000) is received in the first quarter of 2020. m. Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter. The December 31, 2020 Accounts Payable ($8,000) is paid in the first quarter of 2021. 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. 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 2021. 2. Prepare a schedule of expected cash collections for each quarter and in total for the year 2021 3. Prepare a production budget for each quarter and in total for the year 2021. 4. Prepare a direct materials budget for each quarter and in total for the year 2021. 5. Prepare a schedule of expected cash disbursements for purchases of materials for each quarter and in total of the year 2021. 6. Prepare a budgeted Schedule of Cost of Goods Manufactured for the year of 2021. 7. Prepare a budgeted Income Statement for the year of 2021. 8. Prepare a cash budget for the year of 2021. 323 -=62130% H A GRILTON TIRE COMPANY 2 3 SALES BUDGET 4 2 1 3 4 Year 1 1 2 5 2 5 1500 1900 1700 2100 7200 2500 Sales in units 2300 50 50 50 50 50 50 50 x Selling price 10 11 Total Sales $75,000 $85,000 $95,000 $105,000 $360,000 $115,000 $125,000 12 14 SCHEDULE OF EXPECTED CASH COLLECTIONS 2 3 Year 17 TH 4th Quarter 2020 30 $75,000 Cash Sales 20 $85,000 $95,000 $105,000 $360,000 $25,500 $28,500 $31,500 $108,000 22 1st Quarter 2021 $22,500) 2nd Quarter 2021 $52,500 $59,500 $66,500 $73,500 $252,000 $31,500 3rd Quarter 2021 $35,700 $39,900 $44,100 $151,200 $40,000 4th Quarter 2021 $21,000 $23,800 $26,600 $111,400 Totals 000 II E - 2 14 100 $ 123- BIGA A 2100 o 34 35 PRODUCTION BUDGET 10 4 1 2 3 1 2 Year 11 1500 1700 1900 2100 2500 7200 2300 760 840 680 920 920 1000 Sales in units Add desired units of ending Fin. Goods Inv. (Next Quarters) * Total needs 2460 2180 2740 3020 8120 3300 us 300 680 760 840 920 300 Less: units of beg. Fin. Goods Inv. 1780 1880 1980 2180 7820 2380 49 Required production in units 55 DIRECT MATERIALS BUDGET 1 3 Year 1 N 1780 1880 1980 2180 7820 2380 Required production in units 8 8 8 8 8 8 * $8.00 per unit 1 14240 15040 15840 17440 62560 19040 Total cost of production needs 4272 4752 5232 5712 19968 19312 18992 21072 23152 82528 33 SEBE Add: Desired cost of ending raw material Inventory Total cost of raw materials needed Less: cost of beginning raw materials inventory 2400 4272 4752 5232 16656 16912 14720 16320 17920 65872 Cost of raw materials to be purchased ET 2100 C TT SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR PURCHASES OF MATERIALS 2 3 4 Year AJP, Dec 31, 2020 1st Quarter 2021 2nd Quarter 2021 3rd Quarter 2021 4th Quarter 2021 Totals DIRECT LABOR BUDGET 2 3 Year Total production units 1 x Direct labor hours per unit Total direct labor hours x Direct labor cost per hour Total direct labor cost E7 2100 D 112 193 MANUFACTURING OVERHEAD BUDGET 116 2 3 Year 115 116 117 Variable Overhead Costs: 111 119 Units of production 120 121 x Variable Overhead Rate 171 Total Variable Overhead 125 Fixed Overhead Costs: Depreciation Other 130 Total Fixed OH costs 13 Total Manu. OH costs 130 114 Less Depreciation 13 Manufacturing Overhead paid in cash E7 2100 12 130 190 COST OF GOODS MANUFACTURED BUDGET 141 142 Direct Materials Used: 18 144 Dir.Mat. Inv. 1/1/2021 145 140 Purchases during 2021 Materials Available 10 Tas 150 Less: Dir. Mat. Inv 12/31/2021 151 192 Cost of Direct Mat. Used 14 Direct Labor Costs 155 156 Manufacturing OH costs 19 158 Total Manufacturing costs 150 180 Add: Beg. WIP 1/1/2021 162 Subtotal Less: End WIP 12/31/2021 165 Cost of Goods Manufactured 167 1 119 170 191 17 INCOME STATEMENT For the year ended Dec. 31, 2021 175 196 122 Sales 17 179 Cost of Goodle Sold E 2100 194 INCOME STATEMENT For the year ended Dec. 31, 2021 174 176 Sales 18 17 Cost of Goods Sold: Fin. Goods Inv. Jan. 1, 2021" Cost of Goods Manufactured 185 Goods available for sale TE Less. Fin. Goods Inv. 12/31/2021 Cost of Goods Sold 11 Gross Margin 100 133 Selling and Admin. Expenses 194 10 Income from Operations 107 Interest Expense 190 in Income before Income taxes 200 301 Income Tax Expense 202 203 Net Income 204 201 **Cost of Goods Manufactured/ 2 Total units produced Unit cost for 207 units produced in 2021 200 710 211 "See Balance Sheet on 12/31/2020 112 213 210 CASH BUDGET For the year ended December 31, 2021 115 Sheett- Sheet2 - Sheets 5 100%- $ 0.00 121 A 14 BISA L- E7 2100 212 13 CASH BUDGET For the year ended December 31, 2021 2 3 4 Year 214 21 21 Beginning Cash Balance 1 Add Cash Receipts: Collections from customers 2 Total cash available 2) Cash Payments: Direct Materials Direct Labor 27 Manufacturing Overhead 2 Selling and Administrative: Fixed Variable 2 Capital Expenditures 232 Income Taxes 230 230 Total cash disbursements 23 Excess (deficiency) of cash available 22 over disbursements 330 23 30 Cash balance before financing 20 Financing Section: 20 Borrowings (at the beginning of quarters) 34 Repayments (at the beginning of quarters) Interest 26 Ending Cash balance 210 Shoot Sheet2 - Sheet
