The Gridley Tire Company manufactures racing tires for bicycles. Gridley sells tires for $ 80 each. Gridley is planning for the next year by developing a master budget by quarters. Gridley's balance sheet for December 31, 2018, follows:

Gridley Tire Company

Balance Sheet

December 31, 2018

Assets

Current Assets:

Cash $61,000

Accounts Receivable 22,000

Raw Materials Inventory 10,500

Finished Goods Inventory 24,500

Total Current Assets $118,000

Property, Plant, and Equipment: Equipment 155,000

Less: Accumulated Depreciation (94,000) 61,000

Total Assets $179,000

Liabilities

Current Liabilities:

Accounts Payable $16,000

Stockholders' Equity Common Stock, no par $125,000

Retained Earnings 38,000

Total Stockholders' Equity 163,000

Total Liabilities and Stockholders' Equity $179,000

Budgeted sales are 2,000 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 700 tires at $ 35 each. c. Desired ending Finished Goods Inventory is 50 % of the next quarter's sales; first quarter sales for 2020 are expected be 2 comma 800 tires. FIFO inventory costing method is used. d. Raw Materials Inventory on December 31, 2018, consists of 1 comma 400 pounds of rubber compound used to manufacture the tires. e. Direct materials requirements are 2 pounds of a rubber compound per tire. The cost of the compound is $ 7.50 per pound. f. Desired ending Raw Materials Inventory is 20 % of the next quarter's direct materials needed for production; desired ending inventory for December 31, 2019 is 1 comma 400 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 $ 5 per tire. i. Fixed manufacturing overhead includes $ 1 comma 500 per quarter in depreciation and $ 6 comma 915 per quarter for other costs, such as utilities, insurance, and property taxes. j. Fixed selling and administrative expenses include $ 11 comma 000 per quarter for salaries; $ 1 comma 800 per quarter for rent; $ 1 comma 650 per quarter for insurance; and $ 2 comma 000 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1 % of sales. l. Capital expenditures include $ 45 comma 000 for new manufacturing equipment, to be purchased and paid in the first quarter. m. Cash receipts for sales on account are 75 % in the quarter of the sale and 25 % 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 80 % in the quarter purchased and 20 % 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 $ 2 comma 000 per quarter and is paid in the quarter incurred. q. Gridley desires to maintain a minimum cash balance of $ 60 comma 000 and borrows from the local bank as needed in increments of $ 1 comma 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 comma 000; interest is 5 % per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.