Question

Ex-6. A tire retailer expects the following sales of tires for the first three months of the year: Month Standard Radial January February March 60 80 50 80 40 30 The store's policy is to maintain an ending inventory each month of 40% of next month's budgeted sales. Expected January 1 inventories are 15 for the Standard tires and 20 for the radial tires. The standard tires cost $30 and radial tires cost $50 each. 104 105 106 107 Required: Prepare a monthly purchases budget for January and February for the tires, identifying both quantities and costs.

Answer 1

Standard tire purchase budget (both quantity and cost) for January and February:

Particulars	January	February	March
a. Sales (tires)	60	80	40
b. Add: Ending inventory of tires	32	16
(40% of next month's sales)	(80 * 40%)	(40 * 40%)
c. Less: Beginning inventory of tires	15	32
d. Purchase of standard tires (a+b-c)	77	64
e. Cost per tire ($)	30	30
f. Total purchase cost ($) (d * e)	2310	1920

Radial tire purchase budget (both quantity and cost) for January and February:

Particulars	January	February	March
a. Sales (tires)	50	80	30
b. Add: Ending inventory of tires	32	12
(40% of next month's sales)	(80 * 40%)	(30 * 40%)
c. Less: Beginning inventory of tires	20	32
d. Purchase of radial tires (a+b-c)	62	60
e. Cost per tire ($)	50	50
f. Total purchase cost ($) (d * e)	3100	3000