The purchases budget in Exhibit 9-11 indicates that Marcy’s desires ending inventory equal to 40 percent of the next month’s sales requirements. Because sales in July are expected to be 30 surfboards, the beginning inventory in July

(which is the ending inventory for June) should be 12 units (30 x 40%). Why do you think the beginning inventory in July is only eight surfboards?

Exhibit 9-11

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Marcy's Surf Shop Purchases Budget For the Quarter Ended September 30, 2004 Forecasted Unit Sales = Total Units Needed July August September Total 30 50 40 120 (a) + Desired Ending Inventory* 20 16 24 24 (b) 50 66 64 144 (c) 1 Beginning Inventory (8) (20) (16) (8) (d) = Units to Be Purchased 42 46 48 136 (e) Cost per Unit $ 120 $ 120 120 120 (f) = Cost of Purchases $5,040 $5,520 $5,760 $16,320 (g) *40% of the next month's sales requirements