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. Grilton’s 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
Stockholder’s Equity
Common Stock, no par $ 130,000
Retained Earnings 87,100
Total Stockholder’s Equity 217,100
Total Liabilities and Stockholder’s 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 quarter’s 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 quarter’s 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 sales budget in units and dollars for each quarter and in total for the year 2018. (5 pts.)
| Sales Budget | |||||
| Q1 | Q2 | Q3 | Q4 | Year | |
| Expected Unit Sales | 1,500 | 1,700 | 1,900 | 2,100 | 7,200 |
| Sales Price | 50 | 50 | 50 | 50 | 50 |
| Total Sales | 75,000 | 85,000 | 95,000 | 105,000 | 360,000 |
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