Question

PA8-6 Preparing Operating Budgets for a Merchandising Firm [LO 8-5, 8-3a, f, g, h] 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 36,000 56,000 28,000 56,000 Each T-shirt is expected to sell for $11. The purchasing manager buys the T-shirts for $4 each. The company needs to have enough T-shirts on hand at the end of each quarter to fill 21 percent of the next quarter’s sales demand. Selling and administrative expenses are budgeted at $72,000 per quarter plus 10 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. rev: 10_28_2016_QC_CS-67902

Answer 1

	Budgeted sale revenue
			q1	q2	q3
	Sales revenue		396000	616000	308000
			Merchandise purchased
			q1	q2	q3
	sale units		36,000	56,000	28,000
	Add: closing inventory		11760	5880	11760
	total required		47,760	61,880	39,760
	less : opening inve		-7560	-11,760	-5,880
	purchases		40,200	50,120	33,880
	cost		$4	$4	$4
	total cost		$160,800	$200,480	$135,520
			Budgeted cost of goods sold
			q1	q2	q3
	COGS		144000	224000	112000
			Selling and administrative expense
			Q1	Q2	Q3
	Expenses		72,000	72,000	72,000
	percent of sale		39600	61600	30800
	total cost		111,600	133,600	102,800
			Budgeted income statement
			q1	q2	q3
	Sale revenue		396000	616000	308000
	less :COGS		144000	224000	112000
	Gross margin		252000	392000	196000
	less:Expenses
	Selling and adm		111,600	133,600	102,800
	Net income		140,400	258,400	93,200