Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
6th Edition
ISBN: 9780134486857
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Textbook Question
Chapter 22, Problem 50BP
Completing a comprehensive budgeting problem—manufacturing company
The Gavin Tire Company manufactures racing tires for bicycles. Gavin sells tires for $70 each. Gavin is planning for the next year by developing a
Other data for Gavin Tire Company:
- a. Budgeted sales are 1,000 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.
- b. Finished Goods Inventory on December 31, 2018, consists of 300 tires at $36 each.
- c. Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2020 are expected to be 1,800 tires; FIFO inventory costing method is used.
- d. Raw Materials Inventory on December 31, 2018 consists of 750 pounds of rubber compound used to manufacture the tires.
- e. Direct materials requirements are 2.5 pounds of rubber compound per tire. The cost of the compound is $4 per pound.
- f. Desired ending Raw Materials Inventory is 40% of the next quarter’s direct materials needed for production; desired ending inventory for December 31, 2019 is 750 pounds; indirect materials are insignificant and not considered for budgeting purposes.
- g. Each tire requires 0.30 hours of direct labor; direct labor costs average $20 per hour.
- h. Variable manufacturing
overhead is $3 per tire. - i. Fixed manufacturing overhead includes $6,000 per quarter in
depreciation and $10,860 per quarter for other costs, such as utilities, insurance, and property taxes. - j. Fixed selling and administrative expenses include $8,000 per quarter for salaries; $4,800 per quarter for rent; $1,950 per quarter for insurance; and $2,000 per quarter for depreciation.
- k. Variable selling and administrative expenses include supplies at 2% of sales.
- l. Capital expenditures include $25,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
- m. 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 for budgeting purposes. - n. Direct materials purchases are paid 50% in the quarter purchased and 50% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019.
- o. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
- p. Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.
- q. Gavin desires to maintain a minimum cash balance of $20,000 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 12% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.
Requirements
- 1. Prepare Gavin’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 budgetManufacturing overhead costs are allocated based on direct labor hours. Round all calculations to the nearest dollar. - 2. Prepare Gavin’s annual financial budget for 2019, including
budgeted income statement and budgeted balance sheet.
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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…
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SECOND IS PART OF THE INFORMATION GIVEN WITH THE QUESTION
The Grady Tire Company manufactures racing tires for bicycles. Grady sells tires for $70 each. Grady is planning for the next year by developing a master budget by quarters. Grady's balance sheet for Decembe 31,2018, follows:
a. Budgeted sales are 1,800 tires for the first quarter and expected to increase by 50 tires per quarter. Cash sales are expected to be 20% of total sales, with the remaining 80% of sales on account.
b. Finished Goods Inventory on December 31, 2018 consists of 100 tires at $36 each.
c. Desired ending Finished Goods Inventory is 50% of the next quarter's sales; first quarter sales for 2020 are expected be 2,000 tires. FIFO inventory costing method is used.
d. Raw Materials Inventory on December 31, 2018, consists of 200 pounds of rubber compound used to manufacture the tires.
e. Direct materials requirements are 2 pounds of a rubber compound…
Preparing a financial budget—schedule of cash receipts and schedule of cash payments
Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item.
Management expects to sell equipment that cost $14,000 at a gain of $7,000. Accumulated depreciation on this equipment is $55,000.
Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for $14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month.
The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one—half of commissions and other selling expenses in the month incurred, with the balance paid the following month.
Chapter 22 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Ch. 22 - Managers are required to think about future...Ch. 22 - Prob. 2TICh. 22 - Managers use results to evaluate employees...Ch. 22 - Managers work with managers in other divisions.Ch. 22 - Prob. 5TICh. 22 - Match the budget types to the definitions.Ch. 22 - Prob. 7TICh. 22 - Prob. 8TICh. 22 - Prob. 9TICh. 22 - Prob. 10TI
Ch. 22 - Prob. 11TICh. 22 - Prob. 12TICh. 22 - Prob. 13TICh. 22 - Prob. 14TICh. 22 - Prob. 15TICh. 22 - Prob. 16TICh. 22 - A company can expect to receive which of the...Ch. 22 - A company prepares a five-year budget. This budget...Ch. 22 - Which of the following is the cornerstone of the...Ch. 22 - Prob. 4QCCh. 22 - Suppose Iron City manufactures cast iron skillets....Ch. 22 - Prob. 6QCCh. 22 - Use the following information to answer questions...Ch. 22 - The budgeted income statement is part of which...Ch. 22 - Prob. 9QCCh. 22 - Use the following information to answer questions...Ch. 22 - Suppose Mallcentral sells 1,000 hardcover books...Ch. 22 - Prob. 12QCCh. 22 - Information technology has made it easier for...Ch. 22 - Prob. 1RQCh. 22 - Prob. 2RQCh. 22 - Prob. 3RQCh. 22 - What is budgetary slack? Why might managers try to...Ch. 22 - Explain the difference between strategic and...Ch. 22 - Explain the difference between static and flexible...Ch. 22 - What is a master budget?Ch. 22 - In a manufacturing company, what are the three...Ch. 22 - Why is the sales budget considered the cornerstone...Ch. 22 - Prob. 10RQCh. 22 - What is the formula used to determine the amount...Ch. 22 - What are the two types of manufacturing overhead?...Ch. 22 - How is the predetermined overhead allocation rate...Ch. 22 - What is the capital expenditures budget?Ch. 22 - Prob. 15RQCh. 22 - What are the budgeted financial statements? How do...Ch. 22 - How does the master budget for a merchandising...Ch. 22 - What is the formula used to determine the amount...Ch. 22 - What budgets are included in the financial budget...Ch. 22 - What is sensitivity analysis? Why is it important...Ch. 22 - Budgeting benefits List the three key benefits...Ch. 22 - Budgeting types Consider the following budgets and...Ch. 22 - Preparing an operating budgetsales budget Brown...Ch. 22 - Preparing an operating budgetproduction budget...Ch. 22 - Preparing an operating budgetdirect materials...Ch. 22 - Preparing an operating budgetdirect labor budget...Ch. 22 - Preparing an operating budgetmanufacturing...Ch. 22 - Preparing an operating budgetcost of goods sold...Ch. 22 - Berry expects total sales of 359,000 in January...Ch. 22 - Preparing a financial budgetschedule of cash...Ch. 22 - Preparing a financial budgetcash budget Booth has...Ch. 22 - Prob. 12SECh. 22 - Preparing an operating budgetsales budget Trailers...Ch. 22 - Preparing an operating budgetinventory, purchases,...Ch. 22 - Victors expects total sales of 702,000 for January...Ch. 22 - Prob. 16SECh. 22 - Preparing a financial budgetcash budget Wilson...Ch. 22 - Victors expects total sales of 702,000 for January...Ch. 22 - Using sensitivity analysis in budgeting Refer to...Ch. 22 - Using sensitivity analysis in budgeting Riverbed...Ch. 22 - Prob. 21ECh. 22 - Preparing an operating budgetsales budget...Ch. 22 - Preparing an operating budgetsales and production...Ch. 22 - Preparing an operating budgetdirect materials,...Ch. 22 - Preparing an operating budgetcost of goods sold...Ch. 22 - Preparing a financial budgetschedule of cash...Ch. 22 - Prob. 27ECh. 22 - Preparing the financial budgetcash budget Use the...Ch. 22 - Preparing the financial budgetcash budget Hoppy...Ch. 22 - Preparing the financial budgetbudgeted balance...Ch. 22 - Preparing an operating budgetinventory, purchases,...Ch. 22 - Preparing an operating budgetselling and...Ch. 22 - Prob. 33ECh. 22 - Preparing a financial budgetcash budget,...Ch. 22 - Preparing a financial budgetcash budget You...Ch. 22 - Use the following June actual ending balances and...Ch. 22 - Using sensitivity analysis Rucker Company prepared...Ch. 22 - Preparing an operating budgetsales, production,...Ch. 22 - Preparing an financial budgetschedule of cash...Ch. 22 - Preparing a financial budgetbudgeted income...Ch. 22 - Completing a comprehensive budgeting...Ch. 22 - Preparing an operating budgetsales budget;...Ch. 22 - Preparing a financial budgetschedule of cash...Ch. 22 - Preparing a financial budgetbudgeted income...Ch. 22 - Prob. 45APCh. 22 - Prob. 46APCh. 22 - Preparing an operating budgetsales, production,...Ch. 22 - Prob. 48BPCh. 22 - Preparing a financial budgetbudgeted income...Ch. 22 - Completing a comprehensive budgeting...Ch. 22 - Prob. 51BPCh. 22 - Preparing a financial budgetschedule of cash...Ch. 22 - Prob. 53BPCh. 22 - Belton Printing Company of Baltimore has applied...Ch. 22 - Using sensitivity analysis Holly Company prepared...Ch. 22 - Prob. 57PCh. 22 - Before you begin this assignment, read the...Ch. 22 - Prob. 1DCCh. 22 - Patrick works for McGills Computer Repair, owned...
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