P7-2 and P7-3 GLIDE TIRE Company

P7-2                 

Glide Tire Company’s budgeted unit sales for the year 2008 were:                          

            Passenger car tires       120,000         

            Truck tires                   25,000                                              

The budgeted selling price for truck tires was $200 per tire and for passenger car tires was $65 per tire. He beginning finished goods inventories was expected to be 2,000 truck tires and 5,000 passenger tires, for a total cost of $326,478, with desired ending inventories at 2,500 and 6,000, respectively, with a total cost of $400,510. There was no anticipated beginning or ending work in process inventory for either type of tire.                                  

The standard materials quantities for each type of fire were as follows:                              

                        Truck   Passenger

            Car Rubber      30lbs    10 lbs

            Steel belts        4 lbs     1.5 lbs

The purchase prices of rubber and steel were $2 and $3 per pound, respectively. The desired ending inventories for rubber and steel were 75,000 and 7,500 pounds respectively. The estimated beginning inventories for rubber and steel were 60,000 and 6,000 pounds, respectively.            

The direct labor hours required for each type of tire were as follows:                                  

                        Molding Department Finishing Department

Truck Tire                                0.25     0.15

Passenger car tire                    0.10    0.05

The direct labor rate for each department is as follows:                    

Molding department               $15 per hour

Finishing department              $13 per hour

Budgeted factory overhead costs for 2008 were as follows:                        

Indirect materials                                                        198,500

Indirect labor                                                                          213,200

Depreciation of building and equipment                    157,500

Power and light                                                           122,900

Total                                                                            692,100

Required:                   

Prepare each of the following budgets for Glide for the year ended 2008:              

1. Sales budget                       

2. Production budget             

3. Direct material budget

4. Direct labor budget

5. Factory overhead budget

6. Cost of goods sold budget

 

P7-3

A listing of budgeted selling and administrative expenses for Glide Tire Company in P7-2 for the year ended December 31, 2008, were as follows:            

            Advertising expense               942,000

            Office rent expense                 125,000

            Office salaries expense           821,000

            Office supplies expense          45,500

            Officers’ salaries expense        661,000

            Sales salaries expense              868,000

            Telephone and fax expense     33,500

            Travel expense                        443,000

Required:                   

1. Prepare a selling and administrative expenses budget, in good form, for the year 2008. 
2. Using the information above and the budgets prepared in P7-2, prepare a budgeted income statement for the year 2008, assuming an income tax rate of 40%.