Question

Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern United States. The sales manager has provided a sales forecast for the coming year, along with the following information:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted Unit Sales	42,000	64,000	32,000	64,000

• Each T-shirt is expected to sell for $17.
• The purchasing manager buys the T-shirts for $7 each.
• The company needs to have enough T-shirts on hand at the end of each quarter to fill 27 percent of the next quarter’s sales demand.
• Selling and administrative expenses are budgeted at $84,000 per quarter plus 14 percent of total sales revenue.

Required:
1.Determine budgeted sales revenue for each quarter.



2. Determine budgeted cost of merchandise purchased for each quarter.



3. Determine budgeted cost of good sold for each quarter.



4. Determine selling and administrative expenses for each quarter.



5. Complete the budgeted income statement for each quarter.

Answer 1

1. Determination of Budgeted Sales revenue for each quarter -

		Quarter 1	Quarter 2	Quarter 3	Quarter 4
a	Budgeted Unit Sales	42000	64000	32000	64000
b	Budgeted Sales price per unit	17	17	17	17
c	Sales Revenue (a*b)	714000	1088000	544000	1088000

2. Determination of Budgeted Cost of merchandise purchased for each quarter -

		Quarter 1	Quarter 2	Quarter 3	Quarter 4
a	Budgeted Unit Sales	42000	64000	32000	64000
b	Add: Desired Closing inventory (0.27* Next month sales)	17280	8640	17280	0
c	Total Finished goods requirement (a+b)	59280	72640	49280	64000
d	less: Opening inventory (0.27*current month sales)	11340	17280	8640	17280
e	Required Units purchased per quarter (c-d)	47940	55360	40640	46720
f	Cost of merchandised purchased per unit @ 7 (e*$7)	335580	387520	284480	327040

3. Determination of Budgeted cost of goods sold for each quarter -

		Quarter 1	Quarter 2	Quarter 3	Quarter 4
a	Required purchased units in $ (taken in part 2)	335580	387520	284480	327040
b	add: Opening cost of units (taken from part 2)	11340	17280	8640	17280
c	less: Closing cost of units (taken from part 2)	17280	8640	17280	0
d	Cost of goods sold (a+b-c)	329640	396160	275840	344320

d. Determination of selling & administrative expenses for each quarter -

		Quarter 1	Quarter 2	Quarter 3	Quarter 4
	Total Sales Revenue (taken from part 1)	714000	1088000	544000	1088000
a	Budgeted selling & administrative expense (fixed) (Given)	84000	84000	84000	84000
b	Budgeted selling & administrative expense (Variable) (0.14*current sales revenue)	99960	152320	76160	152320
c	Total selling & administrative expense for each quarter (a+b)	183960	236320	160160	236320

5. Prepration of budgeted Income statement for each quarter -

		Quarter 1	Quarter 2	Quarter 3	Quarter 4
a	Budgeted Sales (taken from part 1)	714000	1088000	544000	1088000
b	less: cost of goods sold (taken from part 3)	329640	396160	275840	344320
c	Total selling & administrative expense for each quarter (taken from part 4)	183960	236320	160160	236320
d	Cost of sales (b+c)	513600	632480	436000	580640
e	Budgeted income (a-d)	200400	455520	108000	507360

Please check with your answer and let me know.