PA8-6 Preparing Operating Budgets for a Merchandising Firm [LO 8-5, 8-3a, f, g,

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 southwestem United States. The sales manager has provided a sales forecast for the coming year, along with the following information: Quarter 1 Quarter 2 51,000 Quarter 3 Quarter 4 Budgeted Unit Sales Each T-shirt is expected to sell for $21 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 31 percent of the next quarter's sales demand. .Selling and administrative expenses are budgeted at $62,000 per quarter plus 18 percent of total sales revenue 1. Determine budgeted sales revenue for each quarter. 2. Determine budgeted cost of merchandise purchased for each quarter. 3. Determine budgeted cost of good sold for each quarter. 4. Determine selling and administrative expenses far each quarter. 5. Complete the budgeted income statement for each quarter.

Explanation / Answer

Answer = 1) CALCULATION OF THE BUDGETED SALES OF THE EACH QUARTER PARTICULARS QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 BUDGETED UNIT SALES 31000 51000 25500 51000 Multiply By "X " "X " "X " "X " expected price of sales $                     21 $                          21 $                         21 $                      21 Budgeted Sales $         6,51,000 $            10,71,000 $             5,35,500 $        10,71,000 Answer =2) CALCULATION OF THE BUDGETED COST OF MERCHANDISE PURCHASED OF EACH QUARTER QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 Budeted Sales units 31000 51000 25500 51000 Add : Closing Stock of T - Shirts(31% of Next Quarter Sales) 15810 7905 15810 0 Less: Opening Stock of T - Shirts 0 15810 7905 15810 Budgeted Unit to be Purchased 46810 43095 33405 35190 Budgeted Price of the Stock $                        8 $                             8 $                           8 $                        8 Budgeted Cost $         3,74,480 $              3,44,760 $             2,67,240 $          2,81,520 Answer = 3) calculation of the budgeted cost of Goods Sold QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 Budgeted Cost $         3,74,480 $              3,44,760 $             2,67,240 $          2,81,520 Add: Opening Stock Cost(Op Stock X $ 8) $                      -   $              1,26,480 $                 63,240 $          1,26,480 Less: Closing Stock (Sl Stock X $ 8) $         1,26,480 $                  63,240 $             1,26,480 $                       -   Cost of Goods Sold $         2,48,000 $              4,08,000 $             2,04,000 $          4,08,000 Answer = 4 Selling and administrative expenses of each year QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 Fixed Expenses per Quarter $             62,000 $                  62,000 $                 62,000 $              62,000 Variable Expenses (18% of Sales Revenue) $         1,17,180 $              1,92,780 $                 96,390 $          1,92,780 Total $         1,79,180 $              2,54,780 $             1,58,390 $          2,54,780 Answer = 5) Budgeted income statement QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 Sales Revenue $         6,51,000 $            10,71,000 $             5,35,500 $        10,71,000 Less: Cost of Goods Sold $         2,48,000 $              4,08,000 $             2,04,000 $          4,08,000 Gross Revenue $         4,03,000 $              6,63,000 $             3,31,500 $          6,63,000 Less: Selling and Administrative Expenses $         1,79,180 $              2,54,780 $             1,58,390 $          2,54,780 Net Revenue $         2,23,820 $              4,08,220 $             1,73,110 $          4,08,220

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