Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern

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 30,000 Quarter 2 50,000 Quarter 3 25,000 Quarter 4 50,000 Budgeted Unit Sales Each T-shirt is expected to sell for $22. The purchasing manager buys the T-shirts for $9 each. The company needs to have enough T-shirts on hand at the end of each quarter to fill 32 percent of the next quarter's sales demand. Selling and administrative expenses are budgeted at $60,000 per quarter plus 20 percent of total sales revenue. Required: 1. Determine budgeted sales revenue for each quarter. Quarter 1 er 2 Quarter 3 Budgeted Sales Revenue?$ 8,600?$ 9,600 $ 11,600 2. Determine budgeted cost of merchandise purchased for each quarter. Quarter 1 Quarter 2 Quarter 3 Budgeted Cost

Explanation / Answer

1.BUDGETED SALES REVENUE

Quarter 1

Quarter 2

Quarter 3

Budgeted Sales Revenue

$ 6,60,000

(30,000units*$22/unit)

$ 11,00,000

(50,000units*$22/unit)

$ 5,50,000

(25,000units*$22/unit)

2.BUDGETED COST OF MERCHANDISE

Quarter 1

Quarter 2

Quarter 3

Budgeted Cost of Merchandise Purchased

$ 414000

$ 378000

$ 297000

Working Note:

Particulars                                           Quarter 1             Quarter 2              Quarter

Sales(units)                                    30,000 units            50,000 units        25,000 units

Add: Closing Stock                        16000 units            8000 units            16000 units

Less: Opening Stock                        NIL                         (16000units)       ( 8000 units)

Purchases                                           46000 units         42000 units         33000 units

Total Purchases cost                       $414000                $378000                $ 297000

3. COST OF GOODS SOLD

Quarter 1

Quarter 2

Quarter 3

Budgeted Cost of Goods Sold

$ 2,70,000

$ 3,06000

$ 1,48,000

Working Note:

Cost of Goods Sold:

Particulars                                           Quarter 1            Quarter 2        Quarter 3

Purchases                                           $ 414000                 $ 3,78,000         $ 2,97,000

Less Closing Inventory                   ($ 144000)           ( $ 72,000)           ($ 144000)

Cost of Goods Sold                          $ 2,70,000            $ 3,06,000            $ 1,48,000

4. SELLING & ADMINISTRATION EXPENSES

Quarter 1

Quarter 2

Quarter 3

Budgeted Selling & Administration

Expenses

$192000

($60,000+

0.2*660000)

$280000

($ 60000+

0.2*1100000)

$ 170000

($ 60000+

0.2*550000)

5. Budgeted Income Statement for each quarter

                                                    Red Canyon T-shirt Company

                                                    Budgeted Income Statement

Quarter 1

Quarter 2

Quarter 3

Sales

$6,60,000

$ 11,00,000

$ 5,50,000

Less: Cost of Goods Sold

$2,70,000

$3,06,000

$ 1,48,000

          (Purchases-Closing Inventory)

Gross Margin

$3,90,000

$7,94,000

$ 4,02,000

Less: Selling & Administration Expenses

($192000)

($280000)

($170000)

Budgeted Net Operating Income

$198000

$ 514000

$ 232000

Quarter 1

Quarter 2

Quarter 3

Budgeted Sales Revenue

$ 6,60,000

(30,000units*$22/unit)

$ 11,00,000

(50,000units*$22/unit)

$ 5,50,000

(25,000units*$22/unit)

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