## 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 PURCHASESEACH 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