The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for the next year by developing a master budget by quarters. Grilton’s balance sheet for December 31, 2016, follows:
Other data for Grilton Tire Company:
a. 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 30% of total sales, with the remaining 70% of sales on account.
b. Finished Goods Inventory on December 31 consists of 300 tires at $29 each.
c. Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2018 are expected to be 2,300 tires; FIFO inventory costing method is used.
d. Direct materials cost is $8 per tire.
e. Desired ending Raw Materials Inventory is 30% of the next quarter’s direct materials needed for production; desired ending inventory for December 31 is $2,400; indirect materials are insignificant and not considered for budgeting purposes.
f. Each tire requires 0.40 hours of direct labor; direct labor costs average $16 per hour.
g. Variable manufacturing overhead is $2 per tire.
h. 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.
i. 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.
j. Variable selling and administrative expenses include supplies at 2% of sales.