Question

Walker Company prepares monthly budgets. The current budget plans for a September ending merchandise inventory of 27,000 units. Company policy is to end each month with merchandise inventory equal to 15% of budgeted sales for the following month. Budgeted sales and merchandise purchases for the next three months follow. The company budgets sales of 180,000 units in October.

Sales (Units) Purchases (Units)
July 210,000 222,000
August 290,000 290,000
September 290,000 273,500

Required:
a. Prepare the merchandise purchases budget for the months of July, August, and September.
b. Compute the ratio of ending inventory to the next month’s sales.
c. How many units are budgeted for sale in October?

Answer 1

Walker Company

a. Merchandise Purchases Budget for the months of July, August, and September:

July August September

Sales units 210,000 290,000 290,000

Ending inventory 43,500 43,500 27,000

Goods available 253,500 333,500 317,000

Beginning inventory 31,500 43,500 43,500

Purchases 222,000 290,000 273,500

b. The ratio of ending inventory to the next month's sales = 15% (Ending Inventory/Sales next month * 100)

c. The units budgeted for sale in October = 180,000 units.

Step-by-step explanation:

a) Data and Calculations:

September ending inventory = 27,000 units

Ending inventory always equal to 15% of budgeted sales for the following month.

Sales (Units) Purchases (Units)

July 210,000 222,000

August 290,000 290,000

September 290,000 273,500

October 180,000

July August September October

Sales units 210,000 290,000 290,000 180,000

Ending inventory 43,500 43,500 27,000

Goods available 253,500 333,500 317,000

Beginning inventory 31,500 43,500 43,500 27,000

Purchases 222,000 290,000 273,500