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 46,000 72,000 36,000 72,000 Each T-shirt is expected to sell for $21. The purchasing manager buys the T-shirts for $8 each. The company needs to have enough T-shirts on hand at the end of each quarter to fill 31 percent of the next quarter’s sales demand. Selling and administrative expenses are budgeted at $92,000 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. rev: 10_28_2016_QC_CS-67902 ReferenceseBook

Answer 1

(1).

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted Unit Sales	46000	72000	36000	72000
Sale price per unit	$21	$21	$21	$21
Budgeted sales revenue	$966000	$1512000	$756000	$1512000

(2).

Note: Budgeted cost of merchandise purchased can be calculated for first 3 quarters only because for 4^th quarter information about next year will be needed.

	Quarter 1	Quarter 2	Quarter 3
Budgeted Unit Sales	46000	72000	36000
Add: Required ending inventory (31%)	22320	11160	22320
Less: beginning inventory (31%)	(14260)	(22320)	(11160)
Budgeted units required to be purchased	54060	60840	47160
Purchase price per unit	$8	$8	$8
Budgeted cost of merchandise purchased	$432840	$486720	$377280

(3).

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted Unit Sales	46000	72000	36000	72000
Purchase price per unit	$8	$8	$8	$8
Budgeted cost of good sold	$368000	$576000	$288000	$576000

(4).

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted fixed selling & administrative expenses	$92000	$92000	$92000	$92000
Budgeted variable selling & administrative expenses (20% of sales revenues)	$193200	$302400	$151200	$302400
Budgeted Selling and administrative expenses	$285200	$394400	$243200	$394400

(5).

Budgeted Income Statement
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales revenue	$966000	$1512000	$756000	$1512000
Less: Cost of goods sold	($368000)	($576000)	($288000)	($576000)
Gross margin	$598000	$936000	$468000	$936000
Less: Selling and administrative expenses	($285200)	($394400)	($243200)	($394400)
Net income	$312800	$541600	$224800	$541600