Question

Lexi Company forecasts unit sales of 1,600,000 in April, 1,280,000 in May, 930,000 in June, and 1,620,000 in July. Beginning inventory on April 1 is 280,000 units, and the company wants to have 40% of next month’s sales in inventory at the end of each month. Prepare a merchandise purchases budget for the months of April, May, and June.

Answer 1

Month April May June

Purchases budget 1,832 1,140 1,206

Step-by-step explanation:

Purchase budget is determined as follows:

Sales budget + closing inventory - opening inventory

'000

Month April May June July

Sales Units 1,600 1,280 930 1,620

Opening inventory (280) ( 512 ) (372 )

Closing inv.(40% of next mth) 512 372 648

Purchase budget 1,832 1,140 1,206

Note that the closing inventory for a particular becomes the opening inventory for the next following month.

For example, the closing inventory figure of April ( 512 ) is the opening inventory for May.