The Grady Tire Company manufactures racing tires for bicycles. Gradysells tires for $60 each. Grady is planning for the next year by developing a master budget by quarters. Grady's balance sheet for December 31, 2016, follows:

Other data for Grady Tire Company:

Grady Tire Company
Balance Sheet
December 31, 2016
Assets
Current Assets:
Cash	$55,000
Accounts Receivable	45,000
Raw Materials Inventory	900
Finished Goods Inventory	2,600
Total Current Assets		$103,500
Property, Plant, and Equipment:
Equipment	155,000
Less: Accumulated Depreciation	(77,000)	78,000
Total Assets		$181,500
Liabilities
Current Liabilities:
Accounts Payable		$6,000
Stockholders' Equity
Common Stock, no par	$110,000
Retained Earnings	65,500
Total Stockholders' Equity		175,500
Total Liabilities and Stockholders' Equity		$181,500

1. Prepare Grady's operating budget and cash budget for 2017 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.

2. Prepare Grady's annual financial budget for 2017, including budgeted incomestatement, budgeted balance sheet, and budgeted statement of cash flows.

a. Budgeted sales are 700 tires for the first quarter and expected to increase by 50 tires per quarter. Cash sales are expected to be 30% of total sales, with the remaining 70% of sales on account. b. Finichaud Goods Inventory on December 31 consists of 100 tires at $26 each. Bo c. ending Finished Goods Inventory is 20% of the next quarters sales; first quarter sales for 2018 are expected be 900 tires. FlFO inventory costing method is used. d. Direct materials cost is $9 per tire. e. Desired ending Raw Materials Inventory is 20% of the next quarters direct materials needed for production; desired ending inventory for December 31 is $900; indirect materials are insignificant and not considered for budgeting purposes. f. Each tire requires 0.40 hours of direct labor, direct labor costs average $10 per hour. g. Variable manufacturing overhead is $4 per tire. h. Fixed manufacturing overhead includes $3,000 per quarter in depreciation and $1,770 per quarter for other costs, such as utilities, insurance, and property taxes. i. Fixed selling and administrative expenses include $7,500 per quarter for salaries; $3,000 per quarter for rent; $1,650 per quarter for insurance; and $2,000 per quarter for depreciation j. Variable selling and administrative expenses include supplies at 2% of sales. k. Capital expenditures include $50,000 for new manufacturing equipment, to be purchased and paid in the first quarter