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	Quarter 2	Quarter 3	Quarter 4
Budgeted Unit Sales	34,000	54,000	27,000	54,000

• Each T-shirt is expected to sell for $18.
• The purchasing manager buys the T-shirts for $7 each.
• The company needs to have enough T-shirts on hand at the end of each quarter to fill 28 percent of the next quarters sales demand.
• Selling and administrative expenses are budgeted at $68,000 per quarter plus 14 percent of total sales revenue.Required: 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 for each quarter. 5. Complete the budgeted income statement for each quarter.