The Gilder Tire Company manufactures racing tires for bicycles. Gilder sells tires for $85 each. Gilder is planning for the next year by developing a master budget by quarters. Gilder's balance sheet for December 31, 2024, follows:

Gilder Tire Company
Balance Sheet
December 31, 2024
Assets
Current Assets:
Cash	$36,000
Accounts Receivable	25,000
Raw Materials Inventory	6,000
Finished Goods Inventory	12,800
Total Current Assets		$79,800
Property, Plant, and Equipment:
Equipment	155,000
Less: Accumulated Depreciation	(39,000)	116,000
Total Assets		$195,800
Liabilities
Current Liabilities:
Accounts Payable		$10,000
Stockholders' Equity
Common Stock, no par	$175,000
Retained Earnings	10,800
Total Stockholders' Equity		185,800
Total Liabilities and Stockholders' Equity		$195,800

a. Budgeted sales are 1,800 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, 2024 consists of 400 tires at $32 each.

c. Desired ending Finished Goods Inventory is 40% of the next quarter's sales; first quarter sales for 2026 are expected be 2,600 tires. FIFO inventory costing method is used.

d. Raw Materials Inventory on December 31, 2024, consists of 800 pounds of rubber compound used to manufacture the tires.

e. Direct materials requirements are two pounds of a rubber compound per tire. The cost of the compound is $7.50 per pound.

f. Desired ending Raw Materials Inventory is 30% of the next quarter's direct materials needed for production; desired ending inventory for December 31, 2025 is 800 pounds; indirect materials are insignificant and not considered for budgeting purposes.

g. Each tire requires 0.80 hours of direct labor; direct labor costs average $25 per hour.

h. Variable manufacturing overhead is $1 per tire.

i. Fixed manufacturing overhead includes $3,000 per quarter in depreciation and $39,940 per quarter for other costs, such as utilities, insurance, and property taxes.

j. Fixed selling and administrative expenses include $11,000 per quarter for salaries; $3,600 per quarter for rent; $900 per quarter for insurance; and $1,000 per quarter for depreciation.

k. Variable selling and administrative expenses include supplies at 3% of sales.

l. Capital expenditures include $10,000 for new manufacturing equipment, to be purchased and paid in the first quarter.

m. Cash receipts for sales on account are 80% in the quarter of the sale and 20% in the quarter following the sale; December 31, 2024, Accounts Receivable is received in the first quarter of 2025; uncollectible accounts are considered insignificant and not considered for budgeting purposes.

n. Direct materials purchases are paid 90% in the quarter purchased and 10% in the following quarter; December 31, 2024, Accounts Payable is paid in the first quarter of 2025.

o. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

p. Income tax expense is projected at $2,500 per quarter and is paid in the quarter incurred.

q. Gilder 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 5% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.