The Grady Tire Company manufactures racing tires for bicycles. Grady Tire Company sells tires for $ $85$ each. Grady Tire Company is planning for the next year by developing a master budget by quarters. Grady Tire Company's balance sheet for December $31,2025,$follows:

The Grady Tire Company manufactures racing tires for bicycles. Grady Tire Company sells tires for $$85$

Grady Tire Company is planning for the next year by developing a master budget by quarters. Grady Tir

balance sheet for December $31,2025,$ follows:

View the balance sheet.

View other data for Grady Tire Company.

Read the requirements.

Requirement $1.$ Prepare Grady Tire Company's operating budget and cash budget for $2026b$

iter. Required

schedules and budgets include: sales budget, production budget, direct materials budget, dir

manufacturing overhead budget, cost of goods sold budget, selling and administrative expe

bor budget,

cash receipts, schedule of cash payments, and cash budget. Manufacturing overhead cost

udget, schedule $c$

direct labor hours. Round all calculations to the nearest dollar.

allocated based o

Begin by preparing the sales budget.

Grady Tire Company

Sales Budget

For the Year Ended December $31,2026$

Requirements$-$

$($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 $1,600$ tires for the first quarter and expected to increase by $100$ tires per quarter. Cash sales are expected to be $20\%$ of total sales, with the remaining $80\%$ of sales on account.

b$.$

Finished Goods Inventory on December $31,2025$ consists of $400$ tires at $$33$ each.

c$.$

Desired ending Finished Goods Inventory is $40\%$ of the next quarter's sales; first quarter sales for $2027$ are expected be $2,000$ tires. FIFO inventory costing method is used.

d$.$

Raw Materials Inventory on December $31,2025,$ 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 $$9\mathrm{.}00$ 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 $31,2026,$ is $800$ pounds; indirect materials are insignificant and not considered for budgeting purposes.

g$.$

Each tire requires $0\mathrm{.}40$ hours of direct labor; direct labor costs average $$10$ per hour.

h$.$

Variable manufacturing overhead is $$1$ per tire.

i$.$

Fixed manufacturing overhead includes $$1,500$ per quarter in depreciation and $$11,450$ per quarter for other costs, such as utilities, insurance, and property taxes.

j$.$

Fixed selling and administrative expenses include $$10,000$ per quarter for salaries; $$2,400$ per quarter for rent; $$1,200$ per quarter for insurance; and $$1,000$ per quarter for depreciation.

k$.$

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

l$.$

Capital expenditures include $$30,000$ 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 $31,2025,$ 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 $50\%$ in the quarter purchased and $50\%$ 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 $$3,000$ per quarter and is paid in the quarter incurred.

q$.$

Grady Tire Company desires to maintain a minimum cash balance of $$65,000$ and borrows from the local bank as needed in increments of $$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 $10\%$ per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter

Not pictured on Balance Sheet:

Current assets:

cash: $69000$

accounts receivable: $50,000$

raw materiials inventory: $7,200$