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: Quarter 1 47,000 Quarter 2 74,000 Budgeted Unit Sales Quarter 3 37,000 Quarter 4 74,000 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 $94,000 per quarter plus 10 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 5. Complete the budgeted income statement for each quarter. RED CANYON T-SHIRT COMPANY Budgeted Income Statement Quarter 1 Quarter 2 Quarter 3 Budgeted Gross Margin Budgeted Net Operating Income