Question

Sales Budget Summer Fun T-Shirt Shop has very seasonal sales. For 2014, management is trying to decide whether to establish a sales budget based on average sales or on sales estimated by quarter. The unit sales for 2014 are expected to be 10 percent higher than 2013 sales. Unit shirt sales by quarter for 2013 were as follows:

	Children's		Men's	Total
Winter quarter	200	200	100	500
Spring quarter	200	250	200	650
Summer quarter	400	300	200	900
Fall quarter	200	250	100	550
Total	1000	1000	600	2600

Children’s T-shirts sell for $9 each, women’s sell for $13, and men’s sell for $14.

Assuming a 10 percent increase in sales, prepare a sales budget for each quarter of 2014 using the following:

a. Average quarterly sales. (Hint: Winter quarter children’s shirts are 275 [1,000 X 1.10/4].)

Summer Fun T-Shirt Shop
Sales Budget (Average)
Quarterly for 2014
Quarter

	Winter	Spring	Summer	Fall	Year Totals
Units:
Children's
Men's
Dollars:
Children's
Women's
Men's
Totals

b. Actual quarterly sales. (Hint: Winter quarter children’s shirts are 220 [200 X 1.10].)

Summer Fun T-Shirt Shop
Sales Budget (Average)
Quarterly for 2014
Quarter

	Winter	Spring	Summer	Fall	Year Totals
Units:
Children's
Women's
Men's
Dollars:
Children's
Women's
Men's
Totals

c. Suggest advantages of each method.

Which one is not an advantage to preparing a sales budget using average quarterly sales.

Reduces the possibility of being out of stock in most quarters

Minimizes the investment in inventory during low-sales quarters

Smoothes the investment in inventory throughout the year

Simplifies the purchasing of inventory

Answer 1

Part a)

The sales budget is provided as below:

Summer Fun T-Shirt Shop
Sales Budget (Average)
Quarterly for 2014
	Winter	Spring	Summer	Fall	Year Totals
Units:
Children's (1,100/4)	275	275	275	275	1,100
Women's (1,100/4)	275	275	275	275	1,100
Men's (660/4)	165	165	165	165	660
Dollars:
Children's (275*9)	2,475	2,475	2,475	2,475	9,900
Women's (275*13)	3,575	3,575	3,575	3,575	14,300
Men's (275*14)	2,310	2,310	2,310	2,310	9,240
Totals	$8,360	$8,360	$8,360	$8,360	$33,440

_____

Part 2)

The sales budget is given as follows:

Summer Fun T-Shirt Shop
Sales Budget (Average)
Quarterly for 2014
	Winter	Spring	Summer	Fall	Year Totals
Units:
Children's	220 [200*(1+10%)]	220 [200*(1+10%)]	440 [400*(1+10%)]	220 [200*(1+10%)]	1,100
Women's	220 [200*(1+10%)]	275 [250*(1+10%)]	330 [300*(1+10%)]	275 [250*(1+10%)]	1,100
Men's	110 [100*(1+10%)]	220 [200*(1+10%)]	220 [200*(1+10%)]	110 [100*(1+10%)]	660
Dollars:
Children's	1,980 (220*9)	1,980 (220*9)	3,960 (440*9)	1,980 (220*9)	9,900
Women's	2,860 (220*13)	3,575 (275*13)	4,290 (330*13)	3,575 (275*13)	14,300
Men's	1,540 (110*14)	3,080 (220*14)	3,080 (220*14)	1,540 (110*14)	9,240
Totals	$6,380	$8,635	$11,330	$7,095	$33,440

_____

Part 3)

Using average quarterly sales provides following advantages:

1) Reduces the possibility of being out of stock in most quarters.

2) Smoothes the investment in inventory throughout the year.

3) Simplifies the purchasing of inventory. (as it remains constant in each quarter)

_____

Using actual quarterly sales provides following advantage:

Minimizes the investment in inventory during low-sales quarters. (as inventory is procured as per the sales requirements)

_____

Option B (Minimizes the investment in inventory during low-sales quarters) is the correct answer.