Question

Lexi Company forecasts unit sales of 1,040,000 in April, 1,220,000 in May, 980,000 in June, and 1,020,000 in July. Beginning inventory on April 1 is 280,000 units, and the company wants to have 30% 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.

Short answer

The amount of merchandise purchase for the month of April, May and June will be $1,126,000, $1,148,000 and $992,000.

Step-by-step solution

Introduction

Beginning inventory represents the amount of inventory an organization has at the beginning of the new financial year. This includes the amount of inventory carried forward from the previous year.

Preparation of merchandise purchases budget

Lexi Company
Merchandise purchase budget
For the month of April, May and June
Particulars	April	May	June
Forecasted sales	$1,220,000	$980,000	$1,020,000
Multiply: Inventory percentage	30%	30%	30%
Desired ending inventory	$366,000	$294,000	$306,000
Add: Budgeted sales	$1,040,000	$1,220,000	$980,000
Total	$1,406,000	$1,514,000	$1,286,000
Less: Beginning inventory	$280,000	$366,000	$294,000
Purchase required	$1,126,000	$1,148,000	$992,000