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 50,000 80,000 40,000 80,000

Each T-shirt is expected to sell for $25.

The purchasing manager buys the T-shirts for $10 each.

The company needs to have enough T-shirts on hand at the end of each quarter to fill 35 percent of the next quarter’s sales demand.

Selling and administrative expenses are budgeted at $100,000 per quarter plus 15 percent of total sales revenue.

Required:

1. Determine budgeted sales revenue for quarters 1, 2, and 3.

2. Determine budgeted cost of merchandise purchased for quarters 1, 2, and 3.

3. Determine budgeted cost of good sold for quarters 1, 2, and 3.

4. Determine selling and administrative expenses for quarters 1, 2, and 3.

5. Complete the budgeted income statement for quarters 1, 2, and 3.

Answer 1

1)	Particulars			Q1	Q2	Q3
	Budgeted unit sales			50000	80000	40000
	Selling price per unit			$              25.00	$              25.00	$              25.00
	Budgeted sales			$ 12,50,000.00	$ 20,00,000.00	$ 10,00,000.00

2)	Particulars			Q1	Q2	Q3	Q4
	Budgeted unit sales			50000	80000	40000	80000
Add:	Desired ending inventory			28000	14000	28000
Less:	Beginning inventory			17500	28000	14000
	Budgeted purchase in units			60500	66000	54000
	Purchasing price per unit			$            10.00	$            10.00	$            10.00
	Budgeted cost of purchase			$ 6,05,000.00	$ 6,60,000.00	$ 5,40,000.00

3)	Particulars			Q1	Q2	Q3
	Budgeted unit sales			50000	80000	40000
	Purchasing price per unit			$            10.00	$            10.00	$            10.00
	Budgeted cost of goods sold			$ 5,00,000.00	$ 8,00,000.00	$ 4,00,000.00

4)	Particulars			Q1	Q2	Q3
	Fixed S&A expenses			$ 1,00,000.00	$ 1,00,000.00	$ 1,00,000.00
	Variable S&A expenses (15%)			$ 1,87,500.00	$ 3,00,000.00	$ 1,50,000.00
	Total S&A expenses			$ 2,87,500.00	$ 4,00,000.00	$ 2,50,000.00

5)	Income Statement
	Particulars			Q1	Q2	Q3
	Sales Revenue			$ 12,50,000.00	$ 20,00,000.00	$ 10,00,000.00
Less:	Cost of Goods sold			$   5,00,000.00	$   8,00,000.00	$   4,00,000.00
	Gross Margin			$   7,50,000.00	$ 12,00,000.00	$   6,00,000.00
Less:	Selling and Adm. Expenses			$   2,87,500.00	$   4,00,000.00	$   2,50,000.00
	Operating Income			$   4,62,500.00	$   8,00,000.00	$   3,50,000.00