H20 Company is a merchandiser of three different products. The company’s March 31 inventories are water skis, 40,000 units; tow ropes, 90,000 units; and life jackets, 250,000 units. Management believes that excessive inventories have accumulated for all three products. As a result, a new policy dictates that ending inventory in any month should equal 10% of the expected unit sales for the following month. Expected sales in units for April, May, June, and July follow.
Budgeted Sales in Units | ||||
| April | May | June | July |
Water skis | 70,000 | 90,000 | 130,000 | 140,000 |
Tow ropes | 100,000 | 90,000 | 110,000 | 100,000 |
Life jackets | 300,000 | 260,000 | 310,000 | 260,000 |
Required
1. Prepare a merchandise purchases budget (in units) for each product for each of the months of April, May, and June.
Analysis Component
2. The purchases budgets in part 1 should reflect fewer purchases of all three products in April compared to those in May and June. What factor caused fewer purchases to be planned? Suggest business conditions that would cause this factor to both occur and affect the company as it has.
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