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, 2024, follows:
Requirement 1. Prepare Gerard's operating budget and cash budget for 2025 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.
HELP:
Balance Sheet December 31, 2024 Assets $ Current Assets Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Total Current Assets Property. Plant, and Equipment: Equipment 56,000 20,000 5,100 9.900 $ 91,000 194,000 152,000 243,000 8,000 Less: Accumulated Depreciation (42.000) $ Total Assets Liabilities Current Liabilities Accounts Payable Stockholders' Equity Common Stock, no par $ 120,000 Retained Earnings 115,000 Total Stockholders' Equity $ Total Liabilities and Stockholders' Equity 235,000 243,000 a Budgeted sales are 1.500 tires for the first quarter and expected to increase by 200 fires per cuarter Cash sales are expected to be 10% of total salos, with the remaining 90% of sales on account Finished Goods Inventory on December 31, 2024 consists of 300 tires at $30 each C Desired ending Finished Goods Inventory is 30% of the next quarter's sales, first quarter sales for 2026 are expected be 2.300 tires FIFO inventory y costing method is used d. Raw Materials Inventory on December 31, 2024. consists of 600 pounds of rubber compound used to manufacture the tires - Direct materials requirements are two pounds of a rubber compound per tire. The cost of the compound is $8.50 per pound 1. Desired ending Raw Materials inventory is 40% of the next quarter's direct materials needed for production desired ending inventory for December 31, 2025 is 600 pounds, indirect materials are insignificant and not considered for budgeting purposes 9. Each tire requires 0.40 hours of Girect labor, direct labor costs average $12 per hour n Variable manufacturing overhead is 84 per tire Food manufacturing overhead includes $6.000 per quarter in depreciation and $16.770 per quarter for others, such as in, and property taxes Fond soling and administrative expenses include $12.500 per quarter for salaries: $3,000 per cuarter for rent $450 per quarter for insurance, and $2,000 per quarter for depreciation k Variable selling and administrative expenses include supplies at 2 of sales. Captal expenditures include $15,000 for new manufacturing equipment, to be purchased and paid in the first quarter m. Cash receipts for sale on account are 70% in the quarter of the sale and 30% in the quarter following the sale: December 31, 2024, Accounts Receivable is received in the first quarter of 2005. uncollectible accounts are considered insignificant and not considered for budgeting purposes n Direct materials purchases are paid 60% in the quarter purchased and 40% in the following quarter December 31, 2024. Accounts Payable is paid in the first quarter of 2025 6. Direct labor manufacturing overhead, and soling and administrative costs are paid in the quarter incurred P. Income tax expense is projected at $1,500 per quarter and is paid in the quarter incurred 4. Gerard desires to maintain a minimum cash balance of $55.000 and borrows from the local bankas needed in increments of $1,000 at the beginning of the quarter principal repayments are made at the beginning of the quarter when dess funds are available and in increments of $1.000, interestis 0% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter e Tire Company Production Budget For the Year Ended December 21,2025 inst Second Third Quarter Guarter Bugete tres o de 50 1.500 1700 1.900 Pus: Deeds ending inventory 310 STO 650 altres rected 2010 2270 2.530 Less 300 570 310 Thes in beginning or 120 30 Budgeted to be produced Fourth Quarter 2.100 7.200 60 2.720 60 7830 300 210 Gerard Tre Company Dit was 8.0 For the Year Ended December 1, 2225 PISI Weerd Third Four Ger QUO Gamer Ger Bebes Deprecen Direct material per tre 2 Directores poc 0.420 3.520 5.920 5.50 1.550 500 Plus Decorating Totalreded 900 1600 150 1726 1000 Less Direct met being tay Baded purchases of circ roborish 30 830 8.30 Dreibast per pour 35250 5200 5 GOS Bade cost of contra 2T 130 S 122030 BRO Card The Company Die Labor Dupe For the Year Ended December 31, 2005 Second Third Quartar Cuarr Quarter Budgeted the top 1,710 1,750 Direct later hours per un 0.40 0.40 Director hours record for production 704 TO 12 Direct libero per 12 5 12 Budged director.com 2.408 Fourth Quarter 2.160 7900 0.40 31036 12 12 19:38 Gerard Tire Company Manufacturing Overhead Budget For the Year Ended December 21, First Second Thie Fourth Quarter Quarter 1710 1.760 2.160 43 5 5 6 1405 70605 7840 5 8.5405 Total Budgeted to be produced VOI couper Budd VOH Budget FOM Deprecation 30,300 6.000 16.770 16.TTO 16.77 16.770 LJ090 22.220 2277 22.770 22.770 91.00 23.610 22.810 30.610 31.410121.440 Dooget FOH Bugged during overtidos TOL 784 364 Director hours Buggenca manucuring overhead costs Premind oveneascation sane 3036 121,400 S Before preparing the cost of goods sold budget, calculate the projected Direct materials cost per tire $ 17.00 Direct labor cost per tire 4.80 Manufacturing overhead cost per tire 16.00 $ 37.80 Total projected manufacturing cost per tire for 2025 Gerard Tire Company Cost of Goods Sold Budget For the Year Ended December 31, 2025 First Second Third Fourth Quarter Quarter Quarter Quarter Total $ 9,900 $ 9,900 45360 $ 64260 $ 71820 S 79 380 260 820 s 55.260 S 64250 $ 71 820 79 380 $ 270,720 Beginning inventory Tires produced and sold in 2025 Total budgeted cost of goods sold Gerard Tire Company Selling and Administrative Expense Budget For the Year Ended December 31, 2025 First Second Third Fourth Quarter Quarter Quarter Quarter Salaries Expense 5 12,500 $ 12,500 $12.500 5 12.500 5 Rent Expense 3,000 3,000 3.000 3,000 Insurance Expense 450 450 450 450 Depreciation Expense 2,000 2.000 2,000 2,000 Supplies Expense 2.700 3,060 3.420 3.780 $ 20,650 $ 21,010 S 21.370 $ 21.7305 Total budgeted selling and administrative expense Total 50.000 12.000 1,800 8.000 12.960 84 760 Cash Receipts from Customers First Quarter Second Third Fourth Quarter Quarter Quarter Total Total sales Second Third Quarter Quarter Fourth Quarter Quarter Total Cash Receipts from Customers: Accounts Receivable balance, December 31, 2024 tasty-Cash sales fail Or-Credit sales collection of Ox 1 sales in Or 1 fat Or-Credit sales collection of Ox 1 sales in 2 2nd Ow-Cash sales 2nd Or-Credits collection of sales in Gtr 2 2nd Or-Credits collection of sales in Gtr 3 3rd Or-Cash sales 3rd Otr ---Credit sales, collection of Our 3 sales in 3 3rd Ger --Credit sales collection of Gr. 3 sales in Gr 4 th-Cash sales 4th Or Credit sales, collection of tr 4 sales in Or. 4 Total cash receipts from customers Accounts Receivable balance, December 31, 2025: 4th Qtr.-Credit sales, collection of tr. 4 sales in Qtr. 1 of 2026
