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 Quart2 32,000 52,000 Quarter 3 20,000 Quarter 4 52.000 Each T-shirt is expected to sell for $20. The purchasing manager buys the T-shirts for $8 cach. The company needs to have enough T-shirts on hand at the end of each quarter to il 30 percent of the next quarter's sales demand. Selling and administrative expenses are budgeted at $64,000 per quarter plus 16 percent of total sales revenue Required: 1. Determine budgeted sales revenue for each quartier Quarter 1 Quarter 2 Quarter 3 $ 640,000 $ 1,040,000 $ 520,000 Budgeted Sales Revenue 2. Determine budgeted cost of merchandise purchased for each quarter. Budgeted Cost of Merchandise Purchased Quarter 1 Quarter 2 Quarter 3 $ 256.000 $ 415,000 $ 200 000 3. Determine budgeted cost of good sold for each quarter. Quarter 1 Quarter 2 Quarter 3 $ 131,200 $ 478,400 $ 145,600 Budgeted Cost of Goods Sold 4. Determine selling and administrative expenses for each quarter. Quarter 3 Quarter 1 Quarter 2 Budgeted Selling and Administrative Expenses $ 166,400 $ 230,400 $ 147,200 5. Complete the budgeted income statement for each quarter. RED CANYON T-SHIRT COMPANY Budgeted Income Statement Quarter 1 Quarter 2 Quarter 3 $ 640,000 $ 1,040,000 $ 520,000 (131,200) (478,400) (145,600) Budgeted Sales Revenue Budgeted Cost of Goods Sold $ 508,800 $ 561,600 $ Budgeted Gross Margin Budgeted Selling and Administrative Expenses 374,400 (147,200) (166,400) (230,400) Budgeted Net Operating Income $ 342,400 $ 331,200 $ 227.200