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	49,000	78,000	39,000	78,000

• Each T-shirt is expected to sell for $24.
• 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 34 percent of the next quarter’s sales demand.
• Selling and administrative expenses are budgeted at $98,000 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) Computation of budgeted sale revenue
	quarter1	quarter2	quarter3
Budgeted unit sales	49000	78000	39000
selling price per unit	24	24	24
budgeted sale revenue	1176000	1872000	936000
2) budeted cost of merchandise purchased
	quarter1	quarter2	quarter3
budgeted unit sale	49000	78000	39000
add: desired ending inventory	26520	13260	26520
Total need	75520	91260	65520
less: beginning inventory	16660	26520	13260
budgeted purchase units	58860	64740	52260
cost per unit	10	10	10
budgeted cost of merchandise purchased	588600	647400	522600
3) budgeted cost of goods sold
	quarter1	quarter2	quarter3
budgeted unit sale	49000	78000	39000
cost per unit	10	10	10
budgeted cost of goods sold	490000	780000	390000
4) selling & administrative expenses
	quarter1	quarter2	quarter3
fixed selling expenses	98000	98000	98000
variable selling expenses	164640	262080	131040
budgeted selling & administrative exp	262640	360080	229040
5) budgeted income statement
	quarter1	quarter2	quarter3
sale revenue	1176000	1872000	936000
cost of goods sold	490000	780000	390000
budgeted gross margin	686000	1092000	546000
selling & administrative expenses	262640	360080	229040
budgeted net operating income	423360	731920	316960