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D plc operates a retail business. Purchases are sold at cost plus 25 per cent. The management
team are preparing purchases budget and have gathered the following data:
1. The budgeted sales are as follows:
Month
July 100
August 90
September 125
October 140
2. It is management policy to hold inventory at the end of each month which is sufficient to
meet sales demand in the next half month, Sales are budgeted to occur evenly during each
month.
Prepare the purchases budget for July, August and Septemberhow to find the opening inventory?
The sales in July are 100. Since sales are at cost plus 25%, the cost of the sales must be 100/125 x 100 = $80.
The opening inventory for July has to be half of the sales and therefore has a cost of 1/2 x $80 = $40.
It is the same logic for each of the following months.
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