Goal: to provide you the opportunity to apply your understanding of the merchandise budgeting process and formulas

Tasks:McFadden's department store has been a profitable family-owned 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 (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 pent-up consumer demand after a number of years of belt-tightening).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 2015 season for the Pacific Coast, where McFadden's operates.Upper management believes that this increase in sales will be felt throughout all departments.

You are the buyer for Department 121, which sells young men's clothing.This department has been one of the more profitable departments for the company.Last year, sales from Department 121 for the JulyDecember season reached $750,000. Your sales forecast for this year (2015) must take into consideration the NRF's prediction for an increase in sales during this periodand should be based on an initial markup percentage of 52%.

Reductions for this period in 2014totaled $105,000.Management expects the dollar amount of reductions to increase this season by 2% in anattempt to spur additional sales.The following reduction percentages are planned for November and 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:

28%	38%

You have the following additional information on the historical stock-to-sales ratio for this type of department:

3.0	1.9	2.1	2.2	3.0	3.2

Today is November 11, 2015.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 five days. Also, the distribution center just notified you via the in-house 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 open-to-buy as of today.

The assignment consists of merchandise budget problems and open-to-buy problems, where you will fill in your answers and provide your calculation processes. To make it easier, you should to round up all of your calculations to the nearest whole number. All the task and problem descriptions will be provided in the assignment. If you would like to keep this page as a reference while you are working on the assignment, you may want to open the link in a new window.

Please note thatalthough you can automatically receive full credit with the correct answer, you are required to provide your calculation as well. If your answer is incorrect, you can still receive partial credit with the right formula.

Merchandising Budget Problems (15 points)

1. Given the NRF's retail trend forecast for 2014, you need to project planned seasonal sales (JulyDecember) for Department 121 for 2015 (2 points).
2. Calculate Department 121's projected monthly sales for November (2 points).
3. Calculate Department 121's existing inventory or BOM inventory for November (2 points).
4. CalculateDepartment 121's desired ending inventory or EOM inventory for November (3 points).
5. Notice that Department 121 allocates the highest percentage of reductions in the months of Novemberand December.Explain these higher percentages (3 points).
6. List and explainthree types of reductions (3 points).

Open-to-Buy Problems (25 points)

As the buyer for Department 121, it is your responsibility to assess your current open-to-buy (OTB) based on the information above. You would like to bring in some new merchandise to go along with the remaining fall merchandise but are not sure if there is any money available.Your job is to calculate open-to-buy as of November 11th:

1. What is the dollar amount of reductions accounted for in November (2 points)?
2. Are there commitments that need to be taken into consideration? If so, state the dollar amounts (2 points).
3. What are the planned purchases at retail? Show your work; no credit will be given without work shown (5 points).
4. What is OTB at retail?Give the dollar amount and show your work (7 points).
5. Are planned purchases equal to open-to-buy? Why or why not (2 points)?
6. What is the cost complement percentage (2 points)?
7. What is OTBat cost? Give the dollar amount and show your work (2 points).
8. Why is OTB important to retailers?Discuss its importance from a strategic perspective (3 points).