Completing a comprehensive budgeting problem—manufacturing companyThe 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, 2018, follows:Other data for Gerard Tire Company:Budgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account.Finished Goods Inventory on December 31, 2018, consists of 300 tires at $33 each.Desired ending Finished Goods Inventory is 30% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,300 tires. FIFO inventory costing method is used.Raw Materials Inventory on December 31, 2018, consists of 600 pounds of rubber compound used to manufacture the tires.Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $8.50 per pound.Each tire requires 0.4 hours of direct labor; direct labor costs average $12 per hour.Variable manufacturing overhead is $4 per tire.Fixed manufacturing overhead includes $6,000 per quarter in depreciation and $16,770 per quarter for other costs, such as utilities, insurance, and property taxes.Fixed selling and administrative expenses include $12,500 per quarter for salaries; $3,000 per quarter for rent; $450 per quarter for insurance; and $2,000 per quarter for depreciation.Variable selling and administrative expenses include supplies at 2% of sales.Capital expenditures include $15,000 for new manufacturing equipment, to be purchased and paid in the first quarter.Cash receipts for sales on account are 70% in the quarter of the sale and 30% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered tor budgeting purposes.Direct materials purchases are paid 60% in the quarter purchased and 40% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019.Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.Income tax expense is projected at $1,500 per quarter and is paid in the quarter incurred.Gerard desires to maintain a minimum cash balance of $55,000 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 $1,000; interest is 6% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.RequirementsPrepare Gerard’s operating budget and cash budget for 2019 by quarter. Required schedules and budgets include: sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, selling and administrative expense budget, schedule of cash receipts, schedule of cash payments, and cash budget. Manufacturing overhead costs are allocated based on direct labor hours. Round all calculations to the nearest dollar.Prepare Gerard’s annual financial budget for 2019, including budgeted income statement and budgeted balance sheet. GERARD TIRE COMPANYBalance SheetDecember 31, 2018AssetsCurrent Assets:CashS 56,000Accounts Receivable20,000Raw Materials Inventory5,100Finished Goods Inventory9,900Total Current Assets$ 91,000Property, Plant, and Equipment:EquipmentLess: Accumulated Depreciation194,000(42,000)152,000Total AssetsS 243,000LiabilitiesCurrent Liabilities:Accounts Payablo$ 8,000Stockholders' EquityCommon Stack, no par$ 120,000Retained Earnings115,000Total Stockholders' Equity235,000Total Liabilities and Stockholders' Equity$ 243,000

Budget: Budget is an effective tool to present the estimated actions for future time period. It…

Answered: GERARD TIRE COMPANY Balance Sheet…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Completing a comprehensive budgeting problem—manufacturing company

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, 2018, follows:

Other data for Gerard Tire Company:

Budgeted sales are 1,500 tires for the first quarter and expected to increase by 200 tires per quarter. Cash sales are expected to be 10% of total sales, with the remaining 90% of sales on account.
Finished Goods Inventory on December 31, 2018, consists of 300 tires at $33 each.
Desired ending Finished Goods Inventory is 30% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,300 tires. FIFO inventory costing method is used.
Raw Materials Inventory on December 31, 2018, consists of 600 pounds of rubber compound used to manufacture the tires.
Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $8.50 per pound.
Each tire requires 0.4 hours of direct labor; direct labor costs average $12 per hour.
Variable manufacturing overhead is $4 per tire.
Fixed manufacturing overhead includes $6,000 per quarter in depreciation and $16,770 per quarter for other costs, such as utilities, insurance, and property taxes.
Fixed selling and administrative expenses include $12,500 per quarter for salaries; $3,000 per quarter for rent; $450 per quarter for insurance; and $2,000 per quarter for depreciation.
Variable selling and administrative expenses include supplies at 2% of sales.
Capital expenditures include $15,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
Cash receipts for sales on account are 70% in the quarter of the sale and 30% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered tor budgeting purposes.
Direct materials purchases are paid 60% in the quarter purchased and 40% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019.
Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
Income tax expense is projected at $1,500 per quarter and is paid in the quarter incurred.
Gerard desires to maintain a minimum cash balance of $55,000 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.

Requirements

Prepare Gerard’s operating budget and cash budget for 2019 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.
Prepare Gerard’s annual financial budget for 2019, including budgeted income statement and budgeted balance sheet.

GERARD TIRE COMPANY
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
S 56,000
Accounts Receivable
20,000
Raw Materials Inventory
5,100
Finished Goods Inventory
9,900
Total Current Assets
$ 91,000
Property, Plant, and Equipment:
Equipment
Less: Accumulated Depreciation
194,000
(42,000)
152,000
Total Assets
S 243,000
Liabilities
Current Liabilities:
Accounts Payablo
$ 8,000
Stockholders' Equity
Common Stack, no par
$ 120,000
Retained Earnings
115,000
Total Stockholders' Equity
235,000
Total Liabilities and Stockholders' Equity
$ 243,000

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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