Walker Company prepares monthly budgets. The current budget plans for a September ending inventory of 30,000 units.

Exercise 22-2 Merchandising: Preparation of purchases budgets (for three periods) LO P1

Walker Company prepares monthly budgets. The current budget plans for a September ending inventory of 30,000 units. Company policy is to end each month with merchandise inventory equal to a specified percent of budgeted sales for the following month. Budgeted sales and merchandise purchases for the next three months follow.

	Sales (Units)	Purchases (Units)
July	180,000	200,250
August	315,000	308,250
September	270,000	259,500

Explanation:

1.

Merchandise Purchases Budget

September required units
Ending inventory	30,000
Add budgeted sales	270,000
Total required in September	300,000

September Beginning Inventory
Total required	300,000
Less budgeted purchases	(259,500)
September beginning inventory	40,500

September Beginning Inventory = August Ending Inventory

August required units
Ending inventory	40,500
Add budgeted sales	315,000
Total required in August	355,500

August beginning inventory
Total required	355,500
Less budgeted purchases	(308,250)
August beginning inventory	47,250

August Beginning Inventory = July Ending Inventory

July required units
Ending inventory	47,250
Add budgeted sales	180,000
Total required in July	227,250

July Beginning Inventory
Total required	227,250
Less budgeted purchases	(200,250)
July beginning inventory	27,000

2.

Percent of Sales to be held as Ending Inventory

Ending inventory for August	=	40,500	=	15%
September Sales		270,000

This percentage is constant for the three months.

3.

October expected sales

September Ending Inventory	=	30,000	=	200,000
Required %		15%