Chapter 22, Problem 29QS

To determine

Concept Introduction:

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

  $Budgetedpurchases=Salesrequirement+Endinginventoryrequirement–Beginninginventory$

This is how we calculate budgeted purchases for a particular month.

Requirement:

To prepare:

Merchandise purchases budget for the months of April, May and June

Answer to Problem 29QS

Solution:

Lexi Company
Merchandise purchases Budget (in Units)
For the Month of April, May and June
	April	May	June
Budgeted sales for the Month	1,040,000	1,220,000	980,000
Add: Ending inventory requirement	366,000	294,000	306,000
Total units required for the month	1,406,000	1,514,000	1,286,000
Less: Beginning inventory	280,000	366,000	294,000
Budgeted purchases	1,126,000	1,148,000	992,000

Explanation of Solution

First, the ending inventory requirement is calculated

The ending inventory requirement is calculated as under -

  $\begin{array}{l}Ending\text{ inven}toryrequirement=30\%ofNextMonthsforecastedsalesunits\\ Ending\text{ inven}toryrequirementforApril=30\%XForecastedsalesunitsforMay\\ Ending\text{ inven}toryrequirementforApril=30\%X1,220,000units\\ Ending\text{ inven}toryrequirementforApril=366,000units\\ Ending\text{ inven}toryrequirementfor\text{ May }=30\%XForecastedsalesunitsfor\text{ June}\\ Ending\text{ inven}toryrequirementfor\text{ May }=30\%X980,000units\\ Ending\text{ inven}toryrequirementfor\text{ May }=294,000units\\ Ending\text{ inven}toryrequirementfor\text{ June }=30\%XForecastedsalesunitsfor\text{ July}\\ Ending\text{ inven}toryrequirementfor\text{ June }=30\%X1,020,00units\\ Ending\text{ inven}toryrequirementfor\text{ June = 306,000 units}\end{array}$

The total requirement of the month is calculated.

  $Totalrequirementofthemonth=Forecastedsalesunits\text{ for month}+Endinginventoryrequirement$ Given, forecasted sales for the Month −

• April = 1,040,000 units
• May =1,220,000 units
• June = 980,000 units

Ending inventory −

• April = 366,000, units
• May =294,000 units
• June = 306,000 units

Total requirement for April, May and June −

  $\begin{array}{l}Totalrequirementofthemonth=Forecastedsalesunits\text{ for month}+Endinginventoryrequirement\\ Totalrequirementofthe\text{ April }=1,040,000units+366,000units\\ Totalrequirementofthe\text{ April }=1,406,000units\\ Totalrequirementofthe\text{ May }=1,220,000units+294,000units\\ Totalrequirementofthe\text{ May }=1,514,000units\\ Totalrequirementofthe\text{ June }=980,000units+306,00units\\ Totalrequirementofthe\text{ June }=1,286,000units\end{array}$

Now, the budgeted purchases will be calculated as under −

Given, beginning inventory −

• April = 280,000 units
• May = 366,000 units
• June = 294,000 units

  $\begin{array}{l}Budgetedpurchasesforthemonth=\text{ Total }requirementofthemonth–Beginninginventory\\ BudgetedpurchasesfortheApril=1,406,00units-280,000units\\ BudgetedpurchasesfortheApril=1,126,000units\\ BudgetedpurchasesfortheMay=1,514,000units-366,000units\\ BudgetedpurchasesfortheMay=1,148,00units\\ Budgetedpurchasesforthe\text{ June}=1,286,000units-294,000units\\ Budgetedpurchasesforthe\text{ June =992,000 }units\end{array}$

Conclusion

Thus, the merchandise purchase budget has been purchased for the months of April, May and June.