The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year by developing a master budget by quarters. Griltons balance sheet for December 31, 2017 follows:

GRILTON TIRE COMPANY

Balance Sheet

December 31, 2017

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:

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.

Finished Goods Inventory on December 31, 2017 consists of 300 tires at $29 each.

Desired ending Finished Goods Inventory is 40% of the next quarters sales; first quarter sales for 2019 are expected to be 2,300 tires and second quarter sales for 2019 are expected to be 2,500. FIFO inventory costing method is used.

Direct Materials cost is $8 per tire.

Desired ending Raw Materials Inventory is 30% of the next quarters direct materials needed for production.

Each tire requires 0.40 hours of direct labor; direct labor costs average $16 per hour.

Variable manufacturing overhead is $2 per tire produced.

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.

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.

Variable selling and administrative expenses include supplies at 2% of sales.

Capital expenditures include $45,000 for new manufacturing equipment, to be purchased and paid in the first quarter.

Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale. The December 31, 2017 Accounts Receivable ($40,000) is received in the first quarter of 2018.

Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter. The December 31, 2017 Accounts Payable ($8,000) is paid in the first quarter of 2018.

Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.

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.

Prepare a budgeted Income Statement for the year of 2018 (5 pts.)

GRILTON TIRE COMPANY
		SALES BUDGET
	1	2	3	4	Year	1	2
Sales in units	1500	1700	1900	2100	2300	2500	2700
x Selling price	50	50	50	50	50	50	50
Total Sales	$75,000	$85,000	$95,000	$105,000	$360,000	$115,000	$125,000
	SCHEDULE OF EXPECTED CASH COLLECTIONS
	1	2	3	4	Year
4th Quarter 2017	40,000
Cash Sales	22500	25500	28500	31500	108000	34500	37500
1st Quarter 2018	$31,500	$21,000			52500
2nd Quarter 2018		$35,700	$23,800		59500
3rd Quarter 2018			$39,900	$26,600	66500
4th Quarter 2018				$44,100	44100	29400
Totals	$94,000	$63,300	$92,200	$102,200	$233,400
		PRODUCTION BUDGET
	1	2	3	4	Year	1	2
Sales in units	1500	1700	1900	2100	7200	2300
Add desired units of	680	760	840	920	920	1000
ending Fin. Goods Inv.
Total needs	2180	2460	2740	3020	10400	3300
Less: units of	300	680	760	840	300	920
beg. Fin. Goods Inv.
Required production in units	1880	1780	1980	2180	7820	2380
		DIRECT MATERIALS BUDGET
		1	2	3	4	Year	1
Required production in units		1880	1780	1980	2180	7820	2380
x $8.00 per unit		8	8	8	8	8	8
Total cost of production needs		15040	14240	15840	17440	62560	19040
Add: Desired cost of ending		4272	4752	5232	5712	5712
raw material Inventory
Total cost of raw materials needed		19312	18992	21072	23152	82568
Less: cost of beginning raw		2400	4272	4752	5232	2400
materials inventory
Cost of raw materials to be purchased		16912	14720	16320	17920	65872
	SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR PURCHASES OF MATERIALS
		1	2	3	4	Year
A/P, Dec. 31, 2017		8000
1st Quarter 2018		11838.4	5073.6			24912
2nd Quarter 2018			10304	4416		14720
3rd Quarter 2018				11424	4896	16320
4th Quarter 2018					12544	12544
Totals		19838.4	15377.6	15840	17440	68496
		DIRECT LABOR BUDGET
		1	2	3	4	Year
Total production units		1880	1780	1980	2180	7820
x Direct labor hours per unit		0.4	0.4	0.4	0.4	0.4
Total direct labor hours		752	712	792	872	3128
x Direct labor cost per hour		16	16	16	16	16
Total direct labor cost		12032	11392	12672	13952	50048
		MANUFACTURING OVERHEAD BUDGET
		1	2	3	4	Year
Variable Overhead Costs:
Units of production		1880	1780	1980	2180	7820
x Variable Overhead Rate		2	2	2	2	2
Total Variable Overhead		3760	3560	3960	4360	15640
Fixed Overhead Costs:
Depreciation		4500	4500	4500	4500	4500
Other		26780	26780	26780	26780	26780
Total Fixed OH costs		31280	31280	31280	31280	31280
Total Manu. OH costs		35040	34840	35240	35640	140760
Less Depreciation		4500	4500	4500	4500	4500
Manufacturing Overhead paid in cash		30540	30340	30740	31140	136260
	COST OF GOODS MANUFACTURED BUDGET
Direct Materials Used:
Dir.Mat. Inv. 1/1/2018		2400
Purchases during 2018		65872
Materials Available		68727
Less: Dir. Mat. Inv 12/31/2018		5712
Cost of Direct Mat. Used			62560
Direct Labor Costs			50048
Manufacturing OH costs			140760
Total Manufacturing costs			253368
Add: Beg. WIP 1/1/2018			0
Subtotal			253368
Less: End WIP 12/31/2018			0
Cost of Goods Manufactured			253368
	INCOME STATEMENT
	For the year ended December 31, 2018
Sales
Cost of Goods Sold:
Fin. Goods Inv. Dec. 31,2017*
Cost of Goods Manufactured
Goods available for sale
Less. Fin. Goods Inv. 12/31/2018**
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
units produced in 2018
*See Balance Sheet on 12/31/2017
		CASH BUDGET
	For the year ended December 31, 2018
		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 beginnings of quarters)
Repayments (at the beginnings of quarters)
Interest
Ending Cash balance