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	31,000	51,000	25,500	51,000

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 $62,000 per quarter plus 18 percent of total sales revenue.

Required:
1. Determine budgeted sales revenue for each quarter

	Quarter 1 Quarter 2 Quarter 3 Budgeted Sales Revenue

2. Determine budgeted cost of merchandise purchased for each quarter

	Quarter 1 Quarter 2 Quarter 3 Budgeted Cost of Merchandise Purchased

3. Determine budgeted cost of good sold for each quarter.

	Quarter 1 Quarter 2 Quarter 3 Budgeted Cost of Goods Sold

4. Determine selling and administrative expenses for each quarter.

	Quarter 1 Quarter 2 Quarter 3 Budgeted Selling and Administrative Expenses

5. Complete the budgeted income statement for each quarter.

	RED CANYON T-SHIRT COMPANY Budgeted Income Statement Quarter 1 Quarter 2 Quarter 3 Budgeted Gross Margin Budgeted Net Operating Income

Answer 1

	Budgeted sale revenue
			q1	q2	q3
	Sales revenue		651000	1071000	535500
			Merchandise purchased
			q1	q2	q3
	sale units		31,000	51,000	25,500
	Add: closing inventory		15810	7905	15810
	total required		46,810	58,905	41,310
	less : opening inve		-9610	-15,810	-7,905
	purchases		37,200	43,095	33,405
	cost		$8	$8	$8
	total cost		$297,600	$344,760	$267,240
			Budgeted cost of goods sold
			q1	q2	q3
	COGS		248000	408000	204000
			Selling and administrative expense
			Q1	Q2	Q3
	Expenses		62,000	62,000	62,000
	percent of sale		117180	192780	96390
	total cost		179,180	254,780	158,390
			Budgeted income statement
			q1	q2	q3
	Sale revenue		651000	1071000	535500
	less :COGS		248000	408000	204000
	Gross margin		403000	663000	331500
	less:Expenses
	Selling and adm		179,180	254,780	158,390
	Net income		223,820	408,220	173,110