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 32,000 Quarter 2 52,000 Quarter 3 26,000 Quarter 4 52,000 Budgeted Unit Sales • Each T-shirt is expected to sell for $20. • 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 30 percent of the next quarter's sales demand. • Selling and administrative expenses are budgeted at $64,000 per quarter plus 16 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

Answer 1

(1)

budgeted sales revenue

Quarter 1: 32000 x $20 = $640000

Quarter 2: 52000 x $20 = $1040000

Quarter 3: 26000 x $20 = $520000

(2)

cost of merchandise purchased = (sales units + ending inventory - beginning inventory) x cost per unit

Quarter 1: {32000 + (52000 x 30%) - 0} x $8 = $380800

Quarter 2: {52000 + (26000 x 30%) - $15600} x $8 = $353600

Quarter 3: {26000 + (52000 x 30%) - $7800} x $8 = $33800

(3)

Budgeted cost of goods sold

Quarter 1: 32000 x $8 = $256000

Quarter 2: 52000 x $8 = $416000

Quarter 3: 26000 x $8 = $208000

(4)

Budgeted selling & administrative expenses

Quarter 1: $64000 + ($640000 x 16%) = $166400

Quarter 2: $64000 + ($1040000 x 16%) = $230400

Quarter 3: $64000 + ($520000 x 16%) = $147200