Other Data

$($Unless otherwise noted, assume all of the following events are budgeted to occur in $2026$ and that any

balances given are stated as of December $31,2025.)$

a$.$ Budgeted sales are $1,300$ tires for the first quarter and expected to increase by $150$ 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 $31,2025$ consists of $700$ tires at $$28$ each.

c$.$ Desired ending Finished Goods Inventory is $40\%$ of the next quarter's sales; first quarter sales for

$2027$ are expected be $1,900$ tires. FIFO inventory costing method is used.

d$.$ Raw Materials Inventory on December $31,2025,$ consists of $1,400$ 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 $$4\mathrm{.}00$ per pound.

f$.$ Desired ending Raw Materials Inventory is $40\%$ of the next quarter's direct materials needed for

production; desired ending inventory for December $31,2026,$ is $1,400$ pounds; indirect materials are

insignificant and not considered for budgeting purposes.

g$.$ Each tire requires $0\mathrm{.}20$ hours of direct labor; direct labor costs average $$16$ per hour.

h$.$ Variable manufacturing overhead is $$2$ per tire.

i$.$ Fixed manufacturing overhead includes $$3,000$ per quarter in depreciation and $$80$ per quarter for

other costs, such as utilities, insurance, and property taxes.

j$.$ Fixed selling and administrative expenses include $$8,000$ per quarter for salaries; $$3,600$ per

quarter for rent; $$1,500$ per quarter for insurance; and $$2,000$ per quarter for depreciation.

k$.$ Variable selling and administrative expenses include supplies at $1\%$ of sales.

I. Capital expenditures include $$15,000$ for new manufacturing equipment, to be purchased and paid

in the first quarter.

$m.$ Cash receipts for sales on account are $60\%$ in the quarter of the sale and $40\%$ in the quarter

following the sale; December $31,2025,$ Accounts Receivable is received in the first quarter of $2026$;

uncollectible accounts are considered insignificant and not considered for budgeting purposes.

n$.$ Direct materials purchases are paid $70\%$ in the quarter purchased and $30\%$ in the following quarter.

The December $31,2025,$ Accounts Payable is paid in the first quarter of $2026.$

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

incurred.

p$.$ Income tax expense is projected at $$4,500$ per quarter and is paid in the quarter incurred.

q$.$ Gessing Tire Company desires to maintain a minimum cash balance of $$45,000$ 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 $4\%$ per year and paid at the beginning of the quarter based on the

Gessing Tire Company

Manufacturing Overhead Budget

For the Year Ended December $31,2026$ Production Budget

Direct Labor Budget

Gessing Tire Company

Direct Labor Budget