Lesson 7 Merchandise Budgeting and OpentoBuy Problems

Lesson 7 Merchandise Budgeting and OpentoBuy Problems

McFadden’s department store has been a profitable family owned
retail business (consisting of several stores in the Pacific Coast region) since its
beginning in 1910. The last five years have been rough due to the economy and McFadden’s has been losing ground to national department and
discount stores moving into the area.
The executive team is hopeful that a turnaround is finally occurring. Last year’s sales volume for the entire retail store chain was $50 million. The
National Retail Federation (NRF) predicts an increase in retail sales due to positive economic projections being felt throughout the country (e.g.,
unemployment has been dropping, the stock market is up so investors have more money in their pockets, working hours have been steadily
increasing, and there is an expectation of pentup
consumer demand after a number of years of lower sales and belttightening
in households).
Overall, retailers are expecting one of the best holiday seasons in a long time!
The NRF estimates a 5.5% increase in sales during the July to December 2016 season for the Pacific Coast, where McFadden’s operates. Upper
management believes that this increase in sales will be felt throughout all of its departments.
You are the buyer for Department 121 that sells young men’s clothing. This department has been one of the more profitable departments for the
company. Last year (2015), sales from Department 121 for the JulyDecember
season reached $750,000. Your sales forecast for this year (2016)
must take into consideration the NRF’s prediction for an increase in sales this period, and be based on an initial markup percentage of 52%.
Reductions for this period in 2015 totaled $105,000. Management expects the dollar amount of reductions to increase this season by 2% in attempt to
spur additional sales. The following reduction percentages are planned for November and December:
November December
21% 35%
Relying on information from the last three years, you forecast that 28% of seasonal sales will occur in November and 38% in December of 2016:
November December
28% 38%
You have the following additional information on the historical stocktosales
ratio for this type of department:
July August September October November December
3.0 1.9 2.1 2.2 3.0 3.2
Today is November 11, 2016. Your inventory database has record of an additional merchandise order valued at $300,000 that has yet to be delivered.
It is on a container ship arriving at one of the Pacific ports in 5 days. Also, the distribution center just notified you via the inhouse
inventory alert
system that another large shipment has just arrived on the loading docks for Department 121. This shipment contains merchandise valued at
$190,000 and has yet to be scanned into the computer system.
Finally, your reports show that your desired beginning of the month stock (BOM) for December is $962,160.
Your job is to prepare a MERCHANDISE BUDGET for DEPARTMENT 121 and calculate opentobuy
as of today.
You should provide your numerical answers only. To make it easier, you should to round up all of your calculations to the
nearest whole number. Answers with dollar sign will be counted as wrong answers.
Question 1 2 pts
Given the NRF’s retail trend forecast for 2015, you need to project planned seasonal sales (July–December) for Department 121
for 2016.
Question 2 2 pts
Calculate Department 121’s projected monthly sales (or planned sales) for November.
Question 3 2 pts
Calculate Department 121’s existing inventory or BOM inventory for November.
Question 4 3 pts
Calculate Department 121’s desired ending inventory (EOM inventory) for November.
3 pts
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Question 5
Notice that Department 121 allocates the highest percentage of reductions in the months of November and December. Explain
these higher percentages.

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