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# PHASE FOUR

EXERCISE NINE-A

## Developing a Six Month Merchandise Budget

Using the Basic Stock Method

## Anne Harris is in the process of developing the merchandise

budget for The House for the first six months of 2002. They have
decided to utilize the basic stock method of merchandise budgeting.
Planned sales for the first half of 2002 are \$620,000 and this is divided
as follows: February = 9%, March = 11%, April = 14%, May = 21%;
June = 22%; and July = 23%. Planned total retail reductions are 8% for
February and March, 5% for April and May, and 12% for June and July.
The planned initial markup percentage is 47%. They desire the rate of
inventory turnover for the season to be two times. Also they want to
begin the second half of the year with \$390,000 in inventory at retail.
The spreadsheet you will need to run this simulation is attached.
You will need to double click on this spreadsheet which will bring up the
Excel software. Please note that all rows and columns have been
labeled. You will need to study the formulas below and enter them into
the spreadsheet. Be sure to save your work and print a copy once you
are satisfied with its correctness.
The formula for each row is as follows:

## planned BOM stock for the month = basic stock +

planned monthly sales

## basic stock = average stock for the season - average

monthly sales for the season

## average monthly sales for the season = total planned

sales for the season/number of months in the season

average stock for the season = total planned sales for the
season/estimated inventory turnover rate for the season

## planned sales for the month = (planned sales percentage

for the month)*(planned total sales or \$620,000)

## planned retail reductions for the month = (planned sales

for the month)*(planned retail reduction percentage for the
month)

## planned EOM stock for the month = (planned BOM stock

for the following month)
planned purchases at retail for the month = (planned
sales for the month) + (planned retail reductions for the
month) + (planned EOM stock for the month) - (planned BOM
stock for the month)

## planned purchases at cost for the month = (planned

purchases at retail for the month) * (1.0 - planned initial mark
up percentage)

## planned initial markup for the month = (planned

purchases at retail for the month) - (planned purchases at cost
for the month)

## planned gross margin for the month = (planned initial

markup for the month) - (planned retail reductions for the
month)

## planned sales percentage by month = February 9%,

March 11%, April 14%, May 21%, June 22%, July 23%.

## planned retail reduction percentage by month = 8% for

February and March, 5% for April and May, and 12% for June
and July.
EXERCISE NINE-A

## Feb-98 Mar-98 Apr-98 May J un-98 J ul-98 Total

Plan BOM Stock
Basic Stock
Avg Monthly Sales
Avg Stk for Season
Plan Sales
Plan Rtl Reductions
Plan EOM Stock
Plan Purch at Rtl
Plan Purch at Cost
Plan Initial Markup
Plan Gross Margin
Plan Sales %
Plan Rtl Reductn %

PHASE FOUR
EXERCISE NINE-B

## Developing a Six Month Merchandise Budget

Using the Percentage Variation Method

## Anne Harris is in the process of developing the merchandise

budget for The House for the first six months of 2002. They have
decided to utilize the percentage variation method of merchandise
budgeting. Planned sales for the first half of 2002 are \$620,000 and
this is divided as follows: February = 9%, March = 11%, April = 14%,
May = 21%; June = 22%; July = 23%. Planned total retail reductions
are 8% for February and March, 5% for April and May, and 12% for June
and July. The planned initial markup percentage is 47%. They desire
the rate of inventory turnover for the season to be two times. Also they
want to begin the second half of the year with \$390,000 in inventory at
retail.
The spreadsheet you will need to run this simulation is attached.
You will need to double click on this spreadsheet which will bring up the
Excel software. Please note that all rows and columns have been
labeled. You will need to study the formulas below and enter them into
the spreadsheet. Be sure to save your work and print a copy once you
are satisfied with its correctness.
The formula for each row is as follows:

## planned BOM stock for the month = average stock for

season *(1/2)[1+(planned sales for the month/average
monthly sales)]

## average monthly sales for the season = total planned

sales for the season/number of months in the season

average stock for the season = total planned sales for the
season/estimated inventory turnover rate for the season

## planned sales for the month = (planned sales percentage

for the month)*(planned total sales or \$620,000)

## planned retail reductions for the month = (planned sales

for the month)*(planned retail reduction percentage for the
month)

## planned EOM stock for the month = (planned BOM stock

for the following month)

## planned purchases at retail for the month = (planned

sales for the month) + (planned retail reductions for the
month) + (planned EOM stock for the month) - (planned BOM
stock for the month)

## planned purchases at cost for the month = (planned

purchases at retail for the month) * (1.0 - planned initial mark
up percentage)
planned initial markup for the month = (planned
purchases at retail for the month) - (planned purchases at cost
for the month)

## planned gross margin for the month = (planned initial

markup for the month) - (planned retail reductions for the
month)

## planned sales percentage by month = February 9%,

March 11%, April 14%, May 21%, June 22%, July 23%.

## planned retail reduction percentage by month = 8% for

February and March, 5% for April and May, and 12% for June
and July.

EXERCISE NINE-B

## Feb-98 Mar-98 Apr-98 May-98 J un-98 J ul-98 Total

Plan BOM Stock
Avg Monthly Sales
Avg Stck for Season
Plan Sales
Plan Rtl Reductions
Plan EOM Stock
Plan Purch at Rtl
Plan Purch at Cost
Plan Initial Markup
Plan Gross Margin
Plan Sales %
Plan Rtl Reductn %