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: Budgeted Unit Sales Quarter 1 44,000 Quarter 2 68,000 Quarter 3 34,000 Quarter 4 68,000 • Each T-shirt is expected to sell for $19. • 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 29 percent of the next quarter's sales demand. • Selling and administrative expenses are budgeted at $88,000 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 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

Answer 1

Part-1
Sales Budget
	Q-1	Q-2	Q3
Sales units (a)	44000	68000	34000
Selling price per unit (b)	$19.00	$19.00	$19.00
Budgeted Sales revenue (aXb)	$836,000.00	$1,292,000.00	$646,000.00
Part-2
Purchase Budget
	Q1	Q2	Q3	Q4
Budgetd sales units	44000	68000	34000	68000
Add: Ending Desired inventory	19720	9860	19720
(29% of next quarter sales)
Total Needs	63720	77860	53720
Less: Beginning Inventory	12760	19720	9860
(29% of current quarter sales)
Budgeted Purchase units (a)	50960	58140	43860
Cost per unit (b)	$8.00	$8.00	$8.00
Budgeted Purchase in $ (aXb)	$407,680.00	$465,120.00	$350,880.00
Part-3
Cost of Goods Sold
	Q-1	Q-2	Q3
Sales units (a)	44000	68000	34000
Cost per unit (b)	$8.00	$8.00	$8.00
Budgeted Cost of goods sold (axb)	$352,000.00	$544,000.00	$272,000.00
Part-4
Selling & Admin Budget
	Q-1	Q-2	Q3
Sales revenue	$836,000.00	$1,292,000.00	$646,000.00
Fixed selling and admin expense (a)	$88,000.00	$88,000.00	$88,000.00
Variable Expenses( 16% Xsales revenue) (b)	$133,760.00	$206,720.00	$103,360.00
Budgeted Selling and admin expense (a+b)	$221,760.00	$294,720.00	$191,360.00
Part-5 Budgeted Income statement
	Q-1	Q-2	Q3
Sales revenue	$836,000.00	$1,292,000.00	$646,000.00
Less
Budgeted Cost of goods sold	$352,000.00	$544,000.00	$272,000.00
Gross Margin	$484,000.00	$748,000.00	$374,000.00
Less: Budgeted Selling and admin expense	$221,760.00	$294,720.00	$191,360.00
Net operating Income	$262,240.00	$453,280.00	$182,640.00

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