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 39,000 Quarter 2 59,000 Quarter 3 29,500 Quarter 4 59,000 Budgeted Unit Sales • Each T-shirt is expected to sell for $14. • 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 24 percent of the next quarter's sales demand • Selling and administrative expenses are budgeted at $78,000 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

Calculation of Units to purchase.

Purchases	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales units	39,000	59,000	29,500	59,000
Less: Opening stock (24% of next quarter sales)	9,360 (39000*24%)	14,160 (59000*24%)	7,080 (29500*24%)	14,160 (59000*24%)
Add: Required closing stock (24% of next month sales)	14,160 (59000*24%)	7,080 (29500*24%)	14,160 (59000*24%)
Purchases	43,800	51,920	36,580	44,840

1)

Description	Quarter 1	Quarter 2	Quarter 3
Sales units	39,000	59,000	29,500
Sales price	14	14	14
Budgeted sales revenue	$ 546,000	$ 826,000	$ 413,000

2)

Description	Quarter 1	Quarter 2	Quarter 3
Purchase units	43,800	51,920	36,580
Sales price	6	6	6
Budgeted cost of merchandise purchase	2,62,800	3,11,520	2,19,480

3)

Description	Quarter 1	Quarter 2	Quarter 3
Sales units	39,000	59,000	29,500
Purchase price	6	6	6
Budgeted cost of goods sold	$ 234,000	$354,000	$ 177,000

4)

Description	Quarter 1	Quarter 2	Quarter 3
Budgeted sales revenue	$              5,46,000	$        8,26,000	$        4,13,000
16% of sales	$                  87,360	$        1,32,160	$            66,080
Fixed selling & administrative overheads	$                  78,000	$            78,000	$            78,000
Budgeted selling & administrative overheads	$              1,65,360	$        2,10,160	$        1,44,080

5)

RED CANYON T-SHIRT COMPANY
Budgeted Income Statement
	Quarter 1	Quarter 2	Quarter 3
Budgeted sales revenue	$        5,46,000	$        8,26,000	$        4,13,000
Budgeted cost of goods sold	$        2,34,000	$        3,54,000	$        1,77,000
Budgeted gross margin	$        3,12,000	$        4,72,000	$        2,36,000
Budgeted selling & administrative overheads	$        1,65,360	$        2,10,160	$        1,44,080
Budgeted Net operating income	$        1,46,640	$        2,61,840	$ 91,920