Merchandise purchases budget
Merchandise purchases budget: a retailer's schedule of required purchases, computed as budgeted cost of goods sold plus desired ending inventory minus beginning inventory.
See it move
A shop budgets cost of goods sold of €60,000 for the month and wants to end the month holding €18,000 of inventory, while it currently holds €14,000. Required purchases are €60,000 plus €18,000 minus €14,000, or €64,000 — beginning inventory subtracts because it is stock the shop already owns.
The formula
Variables
- Required purchases (€)
- Budgeted cost of goods sold (€)
- Desired ending inventory (€)
- Beginning inventory (€)
Gives the euros of merchandise a retailer must purchase in the period to cover budgeted sales and reach the desired ending inventory level.
Check yourself
A retailer budgets cost of goods sold of €85,000 for the quarter. It wants ending inventory of €22,000 and currently holds beginning inventory of €25,000. What is the required merchandise purchases budget for the quarter?