The Drew Company Has the Following Information In Addition, the Gross Profit Rate Is 40% and the }

question 27

Essay

The Drew Company has the following information: $\begin{array}{lc}\text { Month } & \text { Budgeted Sales } \\\text { March } & \$ 150,000 \\\text { April } & 153,000 \\\text { May } & 151,000 \\\text { June } & 254,500 \\\text { Julv } & 252,500\end{array}$ In addition, the gross profit rate is 40% and the desired ending inventory level is 20% of next month's sales.
Required: Prepare a purchases budget for April through June.

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Definitions:

Inventory

The total amount of goods or materials that a company or business has in stock, waiting to be sold or used.

Costs of Overstocking

Expenses related to holding excess inventory, including storage, insurance, and losses due to obsolescence or deteriorating items.

Costs of Understocking

Expenses incurred due to insufficient inventory levels, leading to lost sales, backorders, and potentially damaged customer relationships.

Cycle Service Level

A performance metric that measures the probability of meeting customer demand without stockouts within a given inventory cycle.