Question

please show calulations

3. The children's department had the following figures for October: Planned sales $500,000 Planned reductions $5,000 Planned stock, October 1 $850,000 Planned stock, November 1 $630,000 Outstanding orders Planned markup $200,000 51.8% (a) Determine the planned October purchases at retail for the children's department (b) What is the October OTB at cost?

Answer 1

Assumptions:

Planned reduction or planned markdowns means reduction in inventory due to theft, pilferage, etc, not identifiable directly by the store.

Planned Stock on Nov 1 is the Closing Stock for Oct.

Planned Stock on Oct 1 is the Opening Stock for Oct which has remained unsold in September.

Considering FIFO (First In, First Out) method, stock which comes first is sold first. We will apply FIFO method for valuation here.

Answer (a)

Planned Oct Purchase = Planned Sales + Planned Reductions + Outstanding Stock + Planned Stock (Nov 1) - Planned Stock (Oct 1)

Hence, the value of Planned Oct purchase is $ (500,000 + 5,000 + 200,000 + 630,000 - 850,000) = $ 485,000

Answer (b)

October OTB (Open-to-buy) at Cost is OTB value (as calculated above) multiplied by mark-up = 485,000 * 0.518 = $ 251,230

Thank you.