Sales Budget Summer Fun T-Shirt Shop has very seasonal sales. For 2014, manageme

Question

Sales Budget Summer Fun T-Shirt Shop has very seasonal sales. For 2014, management is trying to decide whether to establish a sales budget based on average sales or on sales estimated by quarter. The unit sales for 2014 are expected to be 10 percent higher than 2013 sales. Unit shirt sales by quarter for 2013 were as follows:

Children’s T-shirts sell for $9 each, women’s sell for $13, and men’s sell for $14.

Assuming a 10 percent increase in sales, prepare a sales budget for each quarter of 2014 using the following:

a. Average quarterly sales. (Hint: Winter quarter children’s shirts are 275 [1,000 X 1.10/4].)

Summer Fun T-Shirt Shop
Sales Budget (Average)
Quarterly for 2014
Quarter

b. Actual quarterly sales. (Hint: Winter quarter children’s shirts are 220 [200 X 1.10].)

Summer Fun T-Shirt Shop
Sales Budget (Average)
Quarterly for 2014
Quarter

c. Suggest advantages of each method.

Which one is not an advantage to preparing a sales budget using average quarterly sales.

Reduces the possibility of being out of stock in most quarters

Minimizes the investment in inventory during low-sales quarters

Smoothes the investment in inventory throughout the year

Simplifies the purchasing of inventory

Children's Men's Total Winter quarter 200 200 100 500 Spring quarter 200 250 200 650 Summer quarter 400 300 200 900 Fall quarter 200 250 100 550 Total 1000 1000 600 2600

Explanation / Answer

Part a)

The sales budget is provided as below:

_____

Part 2)

The sales budget is given as follows:

_____

Part 3)

Using average quarterly sales provides following advantages:

1) Reduces the possibility of being out of stock in most quarters.

2) Smoothes the investment in inventory throughout the year.

3) Simplifies the purchasing of inventory. (as it remains constant in each quarter)

_____

Using actual quarterly sales provides following advantage:

Minimizes the investment in inventory during low-sales quarters. (as inventory is procured as per the sales requirements)

_____

Option B (Minimizes the investment in inventory during low-sales quarters) is the correct answer.

Summer Fun T-Shirt Shop Sales Budget (Average) Quarterly for 2014 Winter Spring Summer Fall Year Totals Units: Children's (1,100/4) 275 275 275 275 1,100 Women's (1,100/4) 275 275 275 275 1,100 Men's (660/4) 165 165 165 165 660 Dollars: Children's (275*9) 2,475 2,475 2,475 2,475 9,900 Women's (275*13) 3,575 3,575 3,575 3,575 14,300 Men's (275*14) 2,310 2,310 2,310 2,310 9,240 Totals $8,360 $8,360 $8,360 $8,360 $33,440

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