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	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.

Answer 1

Solution 1:
Red Canyon T-shirt Company
Sales Budget
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted Unit sales	36000	56000	28000
Selling Price per unit	$11.00	$11.00	$11.00
Budgeted Sales revenue	$396,000	$616,000	$308,000
Solution 2:
Red Canyon T-shirt Company
Budgeted cost of merchandise purchases
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted unit sales	36000	56000	28000
Add: Required ending Inventory (21% of next quarter's sales)	11760	5880	11760
Total Needs	47760	61880	39760
Less: Opening Inventory	7560	11760	5880
Required Purchases in units	40200	50120	33880
Cost per unit of T-shirt	$4.00	$4.00	$4.00
Budgeted cost of merchandise purchases	$160,800	$200,480	$135,520
Solution 3:
Red Canyon T-shirt Company
Budgeted Cost of goods sold
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted Unit sales	36000	56000	28000
Cost per unit	$4.00	$4.00	$4.00
Budgeted Cost of goods sold	$144,000	$224,000	$112,000
Solution 4:
Red Canyon T-shirt Company
Budgeted Selling and administrative expenses
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted Sales Revenue	$396,000	$616,000	$308,000
Variable Selling and administrative expense (10%)	$39,600	$61,600	$30,800
Fixed Selling and administrative expense	$72,000	$72,000	$72,000
Budgeted Selling and administrative expenses	$111,600	$133,600	$102,800
Solution 5:
Red Canyon T-shirt Company
Budgeted Income Statement
Particulars	Quarter 1	Quarter 2	Quarter 3
Budgeted Sales Revenue	$396,000	$616,000	$308,000
Less: Cost of goods sold	$144,000	$224,000	$112,000
Budgeted gross Margin	$252,000	$392,000	$196,000
Less: Budgeted Selling and administrative expenses	$111,600	$133,600	$102,800
Budgeted Net operating income	$140,400	$258,400	$93,200