Inventory and Purchase Budget - Part 2

Part 2  -  Determine How Much Each Month's Purchases Will Cost

In order for Murray to calculate how much his monthly purchases will cost, he must determine two things; A) the number of units to be purchased each month and B) the cost to purchase each unit or diskette.

The number of units to be purchased each month has already been calculated in Part 1 of this Budget (see above). The cost to purchase each unit or diskette also has been determined in Budget 1 entitled "Determining Your Selling Price & Your Product Cost per unit". Recall from Budget 1, Murray had determined that each diskette would cost him $3.00 in 200X and $3.30 in 200Y.

200X 200Y
Purchase Price Per Unit or Diskette $ 3.00 $ 3.30

If Murray was selling multiple products, each having a different product cost, he would calculate a weighted average product cost. This would reduce all the product costs down to one single value (IE one single product cost).

Now we can determine how much Murray's purchases will cost him each month. To do this, simply multiply the forecasted purchases (each month) by the cost to purchase each unit or diskette. Below illustrates Murray's calculations for 200X and 200Y:

COST OF PURCHASES
EACH MONTH DURING 200X:
MONTH Number of
Units to be
Purchased
Cost to
Purchase
each Unit
Total Cost
of Purchases
each Month
July 1,548 $3.00 $4,644
August 956 $3.00 $2,868
September 564 $3.00 $1,692
October 412 $3.00 $1,236
November 472 $3.00 $1,416
December 912 $3.00 $2,736
TOTALS 4,864
$14,592

 

COST OF PURCHASES
EACH MONTH DURING 200Y:
MONTH Number of
Units to be
Purchased
Cost to
Purchase
each Product
Total Cost
of Purchases
each Month
Jan. 888 $3.30 $2,930
Feb. 736 $3.30 $2,429
March 720 $3.30 $2,376
April 576 $3.30 $1,901
May 416 $3.30 $1,373
June 328 $3.30 $1,082
July 680 $3.30 $2,244
Aug. 648 $3.30 $2,138
Sept. 424 $3.30 $1,399
Oct. 832 $3.30 $2,746
Nov. 808 $3.30 $2,666
Dec. 1160 $3.30 $3,828
TOTALS 8,216
$27,113

Below summarizes Murray's Total Purchases for each forecasted year (200X and 200Y):

200X 200Y
Number of Units to be Purchased per Year 4,864 8,216
Cost to Purchase Each Unit per Year $3.00 $3.30
Total Cost of Purchases $14,592 $27,113

Murray's next step is to predict when payment will be made to his suppliers for his monthly purchases (Part 3 of the Purchase Budget).

Categories: Forecasting