n$.$ Direct materials purchases are paid $\backslash (75\backslash \%\backslash )$ in the quarter purchased and $\backslash (25\backslash \%\backslash )$ 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 $\backslash (\backslash$$ $2,000\backslash )$ per quarter and is paid in the quarter incurred.

q$.$ Tasneem Tire Company desires to maintain a minimum cash balance of $\backslash (\backslash$$ $30,000\backslash )$ and borrows from the local bank as needed in increments of $\backslash (\backslash$$ $1,000\backslash )$ 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 $\backslash (\backslash$$ $1,000\backslash )$; interest is $\backslash (12\backslash \%\backslash )$ per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.

f$.$ Desired ending Raw Materials Inventory is $20\backslash \%$ of the next quarter?s direct materials needed for production; desired ending inventory for December $31,2026,$ is $547$ pounds; indirect materials are insignificant and not considered for budgeting purposes. Tasneem Tire Company's balance sheet for December $31,2025,$ follows:

Flew the balance sheef

View other data for Tasneem Tire Company.

Read the requirements.

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

Begin by preparing the sales budget.

n$.$ Direct materials purchases are paid $\backslash (75\backslash \%\backslash )$ in the quarter purchased and $\backslash (25\backslash \%\backslash )$ 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 $\backslash (\backslash$$ $2,000\backslash )$ per quarter and is paid in the quarter incurred.

q$.$ Tasneem Tire Company desires to maintain a minimum cash balance of $\backslash (\backslash$$ $30,000\backslash )$ and borrows from the local bank as needed in increments of $\backslash (\backslash$$ $1,000\backslash )$ 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 $\backslash (\backslash$$ $1,000\backslash )$; interest is $\backslash (12\backslash \%\backslash )$ per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.

f$.$ Desired ending Raw Materials Inventory is $20\backslash \%$ of the next quarter?s direct materials needed for production; desired ending inventory for December $31,2026,$ is $547$ pounds; indirect materials are insignificant and not considered for budgeting purposes. Balance Sheet

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 $800$ tires for the first quarter and expected to increase by $100$ tires per quarter. Cash sales are expected to be $\backslash (30\backslash \%\backslash )$ of total sales, with the remaining $\backslash (70\backslash \%\backslash )$ of sales on account.

b$.$ Finished Goods Inventory on December $31,2025$ consists of $250$ tires at $\backslash (\backslash$$ $29\backslash )$ each.

c$.$ Desired ending Finished Goods Inventory is $\backslash (30\backslash \%\backslash )$ of the next quarter's sales; first quarter sales for $2027$ are expected be $1,200$ tires. FIFO inventory costing method is used.

d$.$ Raw Materials Inventory on December $31,2025,$ consists of $500$ 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 $\backslash (\backslash$$ $8\mathrm{.}00\backslash )$ per pound.

f$.$ Desired ending Raw Materials Inventory is $\backslash (20\backslash \%\backslash )$ of the next quarter's direct materials needed for production; desired ending inventory for December $31,2026,$ is $547$ 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 $\backslash (\backslash$$ $20\backslash )$ per hour.

h$.$ Variable manufacturing overhead is $\backslash (\backslash$$ $2\backslash )$ per tire.

i$.$ Fixed manufacturing overhead includes $\backslash (\backslash$$ $3,000\backslash )$ per quarter in depreciation and $\backslash (\backslash$$ $4,820\backslash )$ per quarter for other costs, such as utilities, insurance, and property taxes.

j$.$ Fixed selling and administrative expenses include $\backslash (\backslash$$ $10,000\backslash )$ per quarter for salaries; $\backslash (\backslash$$ $1,800\backslash )$ per quarter for rent; $\backslash (\backslash$$ $500\backslash )$ per quarter for insurance; and $\backslash (\backslash$$ $600\backslash )$ per quarter for depreciation.

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

l$.$ Capital expenditures include $\backslash (\backslash$$ $30,000\backslash )$ for new manufacturing equipment, to be purchased and paid in the first quarter.

m$.$ Cash receipts for sales on account are $\backslash (50\backslash \%\backslash )$ in the quarter of the sale and $\backslash (50\backslash \%\backslash )$ in the quarter following the sale; December $31,2025,$ Accounts Receivabl