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	40,000	60,000	30,000	60,000

• Each T-shirt is expected to sell for $15.
• The purchasing manager buys the T-shirts for $6 each.
• The company needs to have enough T-shirts on hand at the end of each quarter to fill 25 percent of the next quarter’s sales demand.
• Selling and administrative expenses are budgeted at $80,000 per quarter plus 10 percent of total sales revenue.

Required:

1. Determine budgeted sales revenue for each quarter.

budgeted sales revenue for Quarter 1, Quarter 2, Quarter 3

2. Determine budgeted cost of merchandise purchased for each quarter.

Budgeted Cost of Merchandise for Quarter 1, Quarter 2, Quarter 3

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

Budgeted Cost of Goods Sold for Q1,Q2,Q3

4. Determine selling and administrative expenses for each quarter.

Budgeted Selling and administrative Expenses for Q1, Q2, Q3

5. Complete the budgeted income statement for each quarter.

RED CANYON T-SHIRT COMPANY

BUDGETED INCOME STATEMENT

_______________________Q1_____Q2______Q3

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Budgeted Gross Margin

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Budgeted Net Operating Income

Answer 1

1		Quarter 1	Quarter 2	Quarter 3
	Budgeted units sales	40000	60000	30000
	Budgeted unit selling price $	15	15	15
	Budgeted sales revenue $	600000	900000	450000
2		Quarter 1	Quarter 2	Quarter 3
	Budgeted units sales	40000	60000	30000
	Desired ending inventory	15000	7500	15000
	Total needs	55000	67500	45000
	Less: Beginning inventory	10000	15000	7500
	Budgeted units to be purchased	45000	52500	37500
	Cost per unit $	6	6	6
	Budgeted cost of merchandise purchased $	270000	315000	225000
3		Quarter 1	Quarter 2	Quarter 3
	Budgeted units sales	40000	60000	30000
	Cost per unit $	6	6	6
	Budgeted cost of goods sold $	240000	360000	180000
4		Quarter 1	Quarter 2	Quarter 3
	Variable selling and administrative expenses	60000	90000	45000
	Fixed selling and administrative expenses	80000	80000	80000
	Budgeted selling and administrative expenses $	140000	170000	125000

5	RED CANYON T-SHIRT COMPANY
	Budgeted Income Statement
		Quarter 1	Quarter 2	Quarter 3
	Budgeted sales revenue $	600000	900000	450000
	Budgeted cost of goods sold	240000	360000	180000
	Budgeted gross margin	360000	540000	270000
	Budgeted selling and administrative expenses	140000	170000	125000
	Budgeted net operating income	220000	370000	145000