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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.

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Answer:

Month                                          April             May           June  

Purchases budget                      1,832             1,140           1,206

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.

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