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.

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:

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

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).