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	43,000	66,000	33,000	66,000

• Each T-shirt is expected to sell for $18.
• 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 28 percent of the next quarter’s sales demand.
• Selling and administrative expenses are budgeted at $86,000 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.

	Q1	Q2	Q3
Sale units	43000	66000	33000
Per unit Price	18	18	18
Sales Revenue	774000	1188000	594000

2.

	Q1	Q2	Q3	Q4
Units Sold	43000	66000	33000	66000
Less : Opening stock (28% of current quarter sale)	12040	18480	9240
Add : Closing stock (28% of next quarter sale)	18480	9240	18480
Units Purchased	49440	56760	42240
Unit Price	7	7	7
Purchase	346080	397320	295680

3.

	Q1	Q2	Q3
Units Sold	43000	66000	33000
Cost of Purchase	7	7	7
Cost of Goods sold	301000	462000	231000

4.

	Q1	Q2	Q3
Sales	774000	1188000	594000
Selling & Admin expense
Fixed	86000	86000	86000
Variable (15% of sale)	116100	178200	89100
Total Selling & Admin expense	202100	264200	175100

5.

Budgeted Income Statement
	Q1	Q2	Q3
Sales Revenue	774000	1188000	594000
Expenses
Cost of Goods sold	301000	462000	231000
Selling & Admin expense	202100	264200	175100
Total Expense	503100	726200	406100
Net Income	270900	461800	187900