Operational budgets are used by a retail company for planning and controlling its businessactivities. Data regarding the company\u2019s monthly sales for the last 6 months of the year and itsprojected collection patterns are shown below. The cost of merchandise averages 40% of itsselling price. The company\u2019s policy is to maintain an inventory equal to 25% of the next month\u2019sforecasted sales. The inventory balance at cost is P80,000 as of June 3
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The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n To assist you thoroughly, let\u2019s first structure the problem and then walk through the process of determining what\u2019s needed. Since the full data (sales figures and collection patterns) wasn’t included in your message, I\u2019ll walk you through the correct method assuming standard values and structure<\/strong>, and you can plug in your actual numbers<\/strong> accordingly.<\/p>\n\n\n\n Assume monthly sales for July to December are:<\/p>\n\n\n\n Since COGS = 40% of Sales:<\/p>\n\n\n\n Inventory = 25% of next month\u2019s COGS<\/strong><\/p>\n\n\n\n Formula: Let\u2019s calculate for July<\/strong> as an example:<\/p>\n\n\n\n \ud83d\udc49 Purchases = 40,000 + 12,000 \u2013 80,000 = -28,000<\/strong> \u2192 which suggests they\u2019re overstocked and don\u2019t need purchases this month.<\/p>\n\n\n\n For August<\/strong>:<\/p>\n\n\n\n \ud83d\udc49 Purchases = 48,000 + 14,000 \u2013 12,000 = 50,000<\/strong><\/p>\n\n\n\n You’d repeat this process monthly.<\/p>\n\n\n\n Operational budgets are essential tools that help retail businesses plan, control, and allocate resources effectively. One critical component of an operational budget in a retail setting is merchandise planning, which involves forecasting sales, estimating cost of goods sold (COGS), and planning inventory levels and purchases.<\/p>\n\n\n\n In this scenario, the company maintains a policy where inventory at the end of each month equals 25% of the next month\u2019s forecasted cost<\/strong> of sales. This ensures there is enough stock on hand to meet demand while avoiding overstocking. Since the company\u2019s merchandise cost is 40% of the selling price, the cost figures are derived by applying that percentage to the sales forecast.<\/p>\n\n\n\n To budget purchases accurately, companies use the formula:<\/p>\n\n\n\n Purchases = COGS + Ending Inventory \u2013 Beginning Inventory<\/strong><\/p>\n<\/blockquote>\n\n\n\n This approach ensures that inventory aligns with projected sales while keeping the supply chain efficient. For instance, if July sales are projected at P100,000, the COGS would be P40,000. If August sales are higher, inventory requirements for July must increase accordingly to meet that demand. On the other hand, if beginning inventory is high, purchases may be reduced to optimize cash flow.<\/p>\n\n\n\n This budgeting approach enables better cash management, prevents inventory shortages, and aligns purchasing with sales expectations. It is a cornerstone of sound financial planning in retail operations, linking sales projections directly to procurement and inventory strategies.<\/p>\n\n\n\n Operational budgets are used by a retail company for planning and controlling its businessactivities. Data regarding the company\u2019s monthly sales for the last 6 months of the year and itsprojected collection patterns are shown below. The cost of merchandise averages 40% of itsselling price. The company\u2019s policy is to maintain an inventory equal to 25% […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-207569","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/207569","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=207569"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/207569\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=207569"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=207569"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=207569"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n\n\n\nProblem Summary:<\/h3>\n\n\n\n
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\n\n\n\nStep-by-Step Approach:<\/h3>\n\n\n\n
Month<\/th> Sales (P)<\/th><\/tr><\/thead> July<\/td> 100,000<\/td><\/tr> August<\/td> 120,000<\/td><\/tr> September<\/td> 140,000<\/td><\/tr> October<\/td> 160,000<\/td><\/tr> November<\/td> 180,000<\/td><\/tr> December<\/td> 200,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n 1. Compute Cost of Goods Sold (COGS):<\/strong><\/h4>\n\n\n\n
Month<\/th> Sales (P)<\/th> COGS (P) = 40%<\/th><\/tr><\/thead> July<\/td> 100,000<\/td> 40,000<\/td><\/tr> August<\/td> 120,000<\/td> 48,000<\/td><\/tr> September<\/td> 140,000<\/td> 56,000<\/td><\/tr> October<\/td> 160,000<\/td> 64,000<\/td><\/tr> November<\/td> 180,000<\/td> 72,000<\/td><\/tr> December<\/td> 200,000<\/td> 80,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n 2. Compute Ending Inventory for Each Month:<\/strong><\/h4>\n\n\n\n
Month<\/th> Next Month Sales<\/th> Next Month COGS<\/th> Ending Inventory (25%)<\/th><\/tr><\/thead> June<\/td> July (100,000)<\/td> 40,000<\/td> 10,000 (Given: 80,000)<\/td><\/tr> July<\/td> August<\/td> 48,000<\/td> 12,000<\/td><\/tr> August<\/td> September<\/td> 56,000<\/td> 14,000<\/td><\/tr> September<\/td> October<\/td> 64,000<\/td> 16,000<\/td><\/tr> October<\/td> November<\/td> 72,000<\/td> 18,000<\/td><\/tr> November<\/td> December<\/td> 80,000<\/td> 20,000<\/td><\/tr> December<\/td> (assume next)<\/em><\/td> (estimate)<\/td> (optional)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n 3. Compute Merchandise Purchases:<\/strong><\/h4>\n\n\n\n
Purchases = COGS + Ending Inventory \u2013 Beginning Inventory<\/strong><\/p>\n\n\n\n\n
\n
\n\n\n\nExplanation (300 words):<\/h3>\n\n\n\n
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\n","protected":false},"excerpt":{"rendered":"