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 37,000 57,000 28,500 57,000 Each T-shirt is expected to sell for $12. The purchasing manager buys the T-shirts for $5 each. The company needs to have enough T-shirts on hand at the end of each quarter to fill 22 percent of the next quarter’s sales demand. Selling and administrative expenses are budgeted at $74,000 per quarter plus 20 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	2	3	4
budgeted sales in unit	37000	57000	28500	57000
per unit sale price @ 12	444000	684000	342000	684000

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

	Quarter	1	2	3	4
A	budgeted sales in unit (Given)	37000	57000	28500	57000
B	closing stock (Next quarter*22%)	12540	6270	12540	0
C	opening stock (next quarter*22%)	8140	12540	6270	12540
D	purchase (A+B-C)	41400	50730	34770	44460
	Rate of per tshirt @ 5	5	5	5	5
	Budgeted cost of merchandise purchase	207000	253650	173850	222300

Note - 1. Each quarter closing stock has been computed based on next quarter sale*22%, like 1st quarter closing stock = 57000*22% = 12540 units.

2. opening stock has been computed on same logic next quarter sale *22% like 1st quarter opening stock = 37000*22% = 8140 which is last quarter closing stock and which will have become current quarter(1st quarter) opening stock.

3. Purchase has been computed on sale + closing stock - opening stock.

4. 5th quarter sale has not been given so assume 0.

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

	Quarter	1	2	3	4
	Sales @ $ 12 per unit * budgeted sale given in question	444000	684000	342000	684000
less	Cost of T shirts consumed @ 5* purchased qty. computed in part 2	185000	285000	142500	285000
	cost of goods sold	259000	399000	199500	399000

4. Determination of selling and administration expense for each quarter -

	Quarter	1	2	3	4
A	Fixed Selling and administration expense	74000	74000	74000	74000
B	variable selling and administration expense (sales revenue * 20%)	88800	136800	68400	136800
C	Total Selling and administrative overheads (A+B)	162800	210800	142400	210800

5. Computation of Budgted income statement for each quarter -

	Quarter	1	2	3	4
A	Sales	444000	684000	342000	684000
B	Cost of tshirts consumed (as per part 3)	185000	285000	142500	285000
C	Cost of selling and administraive expense (as per part 4)	162800	210800	142400	210800
D	Total expense (B+C)	347800	495800	284900	495800
E	Net income (A-D)	96200	188200	57100	188200

Please check with your answer and let me know.