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

Solution 1:

Computation of Budgeted Sales revenue - Red Canyon
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted unit sales	42000	64000	32000
Selling price per unit	$17.00	$17.00	$17.00
Budgeted Sales Revenue	$714,000.00	$1,088,000.00	$544,000.00

Solution 2:

Computation of Budgeted cost of merchandise purchased - Red Canyon
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted unit sales	42000	64000	32000
Add: Desired ending invetory (27% of next quarter sales)	17280	8640	17280
Total Needs	59280	72640	49280
Less: Beginning inventory	11340	17280	8640
Budgeted purhcase units	47940	55360	40640
Cost per unit	$7.00	$7.00	$7.00
Budgeted cost of merchandise purchased	$335,580.00	$387,520.00	$284,480.00

Solution 3:

Computation of Budgeted cost of goods sold - Red Canyon
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted unit sales	42000	64000	32000
Cost per unit	$7.00	$7.00	$7.00
Budgeted cost of goods sold	$294,000.00	$448,000.00	$224,000.00

Solution 4:

Computation of Budgeted Selling and administrative expenses - Red Canyon
Particulars	Quarter 1	Quarter 2	Quarter 3
Fixed selling expenses	$84,000.00	$84,000.00	$84,000.00
Variable selling expenses (14% of sales)	$99,960.00	$152,320.00	$76,160.00
Budgeted selling and administrative expenses	$183,960.00	$236,320.00	$160,160.00

Solution 5:

Budgeted Income statement - Red Canyon
Particulars	Quarter 1	Quarter 2	Quarter 3
Sales Revenue	$714,000.00	$1,088,000.00	$544,000.00
Cost of goods sold	$294,000.00	$448,000.00	$224,000.00
Budgeted Gross Margin	$420,000.00	$640,000.00	$320,000.00
Selling & Administrative expenses	$183,960.00	$236,320.00	$160,160.00
Budgeted net operating income	$236,040.00	$403,680.00	$159,840.00