The Corner Hardware Store is attempting to develop a merchandise

budget for the next 12 months. To assist in this process, the following
data have been developed. The target inventory turnover is 4.8 and
forecast sales are:
Month
Forecast Sales
1
$27,000
2
26,000
3
20,000
4
34,000
5
41,000
6
40,000
7
28,000
8
27,000
9
38,000
10
39,000
11
26,000
12
28,000
Develop a monthly merchandise budget using the basic stock method
(BSM).

Using the basic stock method we should plan the following inventory levels:
Average monthly sales for the next 12 months = Total planned sales/Number of months
= $374,000/12
= $31,166.67
Average stock for the season = Total planned sales/Inventory turnover
= $374,000/4.8
= $77,916.67
Basic stock = Average stock - Average monthly sales
= $77916.67 - $31166.67
= $46,750

Beginning-of-month (BOM) stock at retail = Basic stock + Planned monthly sales

Month
Planned Inventory
1
$27,000 + 46,750 = $73,750
2
$26,000 + 46,750 = $72,750
3
$20,000 + 46,750 = $66,750
4
$34,000 + 46,750 = $80,750
5
$41,000 + 46,750 = $87,750
6
$40,000 + 46,750 = $86,750
7
$28,000 + 46,750 = $74,750
8
$27,000 + 46,750 = $73,750
9
$38,000 + 46,750 = $84,750
10
$39,000 + 46,750 = $85,750
11
$26,000 + 46,750 = $72,750
12
$28,000 + 46,750 = $74,750