Write a brief analysis of the three inventory policies depicted in the budget scenarios A, B and C and recommend a policy that the company should implement. Give reasons for your recommendation. Your write-up should be based on the results you obtained from the analyses in steps 1-5 above for each of the scenarios A, B, and C. Assume that you are writing on behalf of a professional consultant advising the President of the company about the companys inventory policies.

Quarter 2 May June Budget for a retail company ID O 1 All 3 Months Ouarter 1 December January February 30000 100000 10000 45 405 EON March 40000 Sales Budget Budgeturit Saler Selling Price per unit of sales collected in the month of sales of sales collected in the 1st month after sales Total April 150000 40000 A SON SON 10% Purchase Budget (merchandisine) of next quarter's sales in ending purchases inventory Unit product cost % of purchases paid in quarter purchased % of purchases paid in the 1st quarter after sale $ 35.00 ON 100% $ 12.00 Selling and Administrative Expence Budget Variable selling and administrative Expence per case Fixed selling and administrative expence per quarter Advertising Rent Depreciation $ $ 104.000 35.000 75,000 $ Cash budget Minimum Cash balance s 80,000 12% nhual rate imple interest rate per month 3% Assumtion Sales budget Purchases Budget A Purchase Budget 8 Purchase Budget C S&A Budget Cash Budget A Cash Budget B Cash ABC Merchandising Company Sales Budget For the first quarter ended March 2020 Totd Budgeted unit sales selling price per unit Total sales December 30000 45.00 $ 1.350.000 $ January 100000 45.00 $ 4,500,000 $ Quarter 1 February March 10000 40000 45.00 $ 45.00 $ 450,000 $ 1.800.000 $ 150000 45.00 5 6,750,000 $ April 40000 45.00 1,800,000 $ $ 5 S Beginning accounts receivable December january February March Total cash collection Scheduled of Expected Cash Collections January February March Total 810,000 $ 810.000 1.800.000 2.700.000 5 4,500,000 $ 1.800.000 $ 270.000 $ 2.070.000 $ 180,0005 180.000 2,610,000 $ 4.500,000 $ 450,000 $ 7.560.000 $ Purchases Budget - Merchandising Company For the first quarter ended March 2020 Budget unit sales Add desired ending merchandise Inventory Total needs Less beginning Merchandise Inventory Required purchases Unit product cost Cost ofinventory purchases Quarteri December January February March Total 30000 100000 10000 40000 150000 50000 5000 20000 20000 20000 80000 105000 30000 60000 170000 15000 50000 5000 20000 50000 65000 55000 25000 40000 120000 $ 35.00 $ 35.00 $ 35.00 $ 35.00 $ 35.00 S 2.275.000 $ 1.925.000 $ 875,000 $ 1,400,000 $ 4,200,000 ABC Merchandising Company Budger cash disbursements for Merchandise purchases: For the quarter ended March 2020 Quarter 1 December January February March Total $ 2.275.000 $ $ 2.275.000 s $ 1,975.000 $ $ 1.925.000 $ $ 875,000 $ 875,000 $ s $ $ $ 2.275.000 1.925,000 $ 875.000 $ 5,075,000 Beginning accounts payable december) January Purchases February Purchses March Puchoses Total cash disbursements for merchandise purchases Purchases Budget-Merchandising Company For the first quarter ended March 2020 Quarter 150000 36000 186000 90000 Budget unit sales Add desired ending merchandise Inventory Total needs Less beginning Merchandise Inventory Required purchases Unit product cost Cost of inventory purchases 96000 35.00 3.360.000 December January February March Total 30000 100000 10000 40000 90000 9000 36000 36000 120000 109000 46000 76000 27000 90000 9000 36000 93000 19000 37000 40000 $ 35.00 S 35.00 $ 35.00 $ 35.00 $ $ 3.255,000 S 665.000 $ 1.295,000 $ 1.400.000 $ ABC Merchandising Company Budger cash disbursements for Merchandise purchases For the quarter ended March 2020 Quarter 1 December January February March Total $ 3,255,000 $ S $ s 5 565,000 $ S S 5 $ 1.295.000 $ S S S s $ 3,255,000 $ 655.000 1.295,000 $ Beginning accounts payable (december January Purchases February Purchses 3.255,000 665.000 1.295,000 March Puchases 5,215.000 Total cash disbursements for merchandise purchases D Purchases Budget - Merchandising Company For the first quarter ended March 2020 5 10000 7 150000 4000 8 Budget unit sales Add desired ending merchandise Inventory Total needs Less beginning Merchandise Inventory Required purchases Unit product cost Cost of inventory purchases 154000 10000 144000 35.00 5,040,000 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Quarter December January February March Total 30000 100000 40000 10000 1000 4000 4000 40000 101000 14000 44000 3000 10000 1000 4000 37000 91000 13000 40000 $ 35.00 $ 35.00 $ 35.00 S 35.00 $ $ 1.295,000 $ 3.185.000 $ 455.000 5 1,400,000 5 ABC Merchandising Company Budger cash disbursements for Merchandise purchases: For the quarter ended March 2020 Quarter 1 December January February March Total $ 1.295,000 $ $ 5 5 3,185,000 $ $ 5 5 5 455,000 $ $ 5 $ $ 1.295,000 3.185.000 455.000 $ 1.295,000 3.185.000 455,000 Beginning accounts payable december January Purchase February Purchses March Puchoses Totalcash disbursements for marchandise purchases 4.935.000 ABC Merchandising Company Selling and Administrative Expence Budget For the first quarter ended March 2020 Quarter 1 January February 100000 10000 12.00 $ 12.00 $ 1.200,000 $ 120.000 $ March Total 40000 150000 12.00 $ 12.00 480.000 $ 1.800.000 $ $ $ Budgeted units sales (schedule 1) variable selling and administrative expence per unit Total variable selling and administrative expence per unit Fixed selling and administrative expenses Advertising Rent Depreciation Totalfixed selling and administrative expenses Total selling and administrative expenses Less depreciation Cash disbursements for selling and administrative expenses S S 10 11 12 13 14 15 16 17 18 19 20 $ 104,000 $ 35,000 5 76,000 S 215.000 $ 1,415,000 $ 76,000 $ 1,339.000 104.000 $ 35,000 $ 76,000 $ 215,000 S 335,000 $ 76.000 $ 259.000 104.000 $ 312,000 35.000 5 105,000 76,000 $ 228,000 215.000 $ 645.000 695.000 $ 2,445.000 75,000 $ 228.000 619,000 $2,217.000 $ $ S ABC Merchandising Company Cnh Buc: For the first quarter ended March 2020 January $ February 30.000 $ Quarter 1 March 80.000 $ Total 80,000 S 80,000 8 9 $ 2.610.000 $ 450.0005 4.500.000 $ 4.580.000 $ 7.560,000 7.640,000 $ 2.690.000 $ 530.000 Beginning cash balance add cash reciepts Cash collections from customers Total cash available Less cash disbursements Total cashdisbursements for merchandise purchases Schedule ? Selling and administrative Total cash disbursements Excess deficiency of cash available over disbursement Financing Borrowing at the beginnings of the month) Repayments at end of the month interest Total financing Ending cash balance $ 5 s $ 2.275,000 1.339.000 3,614,000 1924,000) 1.925.000 5 259,000 $ 2.184.000 5 2.396,000 5 875.0005 619.000 $ 1,494,000 1964,000) $ 10 11 12 13 14 15 16 17 18 19 20 21 5.075.000 2,217.000 7.292,000 348,000 5 1,004,000 5 12.316.000) S 1044.000 5 0268.000) 5 0.316.000) 1.044.000 5 0268,000 1,004,000 $ 80,000 5 80.000 $ 80,000 $ 80.000 ABC Merchandising Company Cash Budget For the first quarter ended March 2020 6 Quarter 1 January February March $ 80,000 $ 80.000 $ Total 80.000 $ 80.000 $ 2.610.000 S 4.500.000 $ $ 2.690,000 $4,580,000 $ 450.000 $ 7,560,000 530,000 $ 7,640,000 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Beginning cash balance add cash recepts Cash collections from customers Total cash available Less cash disbursements Total cashdisbursements for merchandise purchases Schedule 2 Selling and administrative Total cash disbursements Excess deficiency at cash available over disbursement Financing Borrowing at the beginnings of the month) Repayments at end of the month) Interest Total financing Ending cash balance $ 3.255.000 $ 665,000 $1.295.000 $ 5.215.000 $1,339,000 $ 259.000 $ 619.000 5 2.217.000 $ 4,594,000 5 924,000 $ 1.914,000 $ 7,432,000 $ 11,904,000) S 3,656,000$ 1,384,000) $ 208.000 5 1.984,000 S 0.576,000) 1.464.000 5 128.000) 5 128.000) 1.084.0005 0.576,000) 1.4640005 80.000 80.000 80.000 $ 5 80,000 ABC Merchandising Company Cash Budget For the first quarter ended March 2020 5 Quarter 1 January February March Total $ 80.000 $ 80.000 $ 80,000 $ 80.000 7 8 $ 2.610.000 $ 4.500.000 $ $ 2.690.000 $ 4.500.000 450,000 $ 7.560.000 530,000 $ 7.640.000 Seginning cash balance add cash reciepts Cash collections from customers Total cash available Less cash disbursements Totalcashdisbursements for merchandise purchases Schedule 2 Selling and administrative Totalcash disbursements Excess deficiency of cash available over disbursement Financing Borrowing at the beginning of the month Repayments at end of the month) Interest Totalfloncini Ending cash balance 10 11 12 13 14 15 16 17 18 19 20 21 $ 1.295,000 S 3,185,000 $ 455,000 $4.935.000 5 1,339,000 S 259.000 619,000 $ 2.217.000 $ 2.634.000 $3,444,000 $1,074,000 S 7.152.000 $ 56.000 $ 1.136.000 $ 1544000) $ 488.000 $ 24.000 $ 1.056,000) $ 624.000 $ 1408.000) 24,000 5 1,056,000) 5 10.000 80,000 674.000 5 80,000 $ 140.000 30.000 $ ABC Merchandising Company Budgeted Income Statement For the first quarter ended March 2020 3 1 $ 5 7 3 $ Sales Cost of goods sold Gross Margin Selling and Administrative Expenses Net Operating income Interest Expense Net Income 6.750,000 5,250,000 1.500.000 2.445.000 $ $ 1945.000) S $ S 1945,000) 0 11 2 3 14 15 16 17 18 19 20 B 2 ABC Merchandising Company Budgeted Income Statement For the first quarter ended March 2020 3 4 5 6 7 8 9 10 11 12 13 14 Sales Cost of goods sold Gross Margin Selling and Administrative Expenses Net Operating income Interest Expense $ $ $ $ 6.750.000 5,250,000 1,500,000 2,445.000 1945,000) $ $ $ Net Income 1945.000) 15 16 17 18 19 20 2 3 ABC Merchandising Company Budgeted Income Statement For the first quarter ended March 2020 4 5 6 $ $ 7 Sales Cost of goods sold Gross Margin Selling and Administrative Expenses Net Operating income Interest Expense 8 6.750,000 5.250.000 1.500.000 2,445.000 $ $ $ 9 1945.000) S $ 10 11 12 13 Net Income $ 1945.000) 14 15 16 17 18 19 20 ABC Merchandising Company Sales Budget For the first quarter ended March 2020 January Budgeted unit sales selling price per unit Total sales December 30000 45.00 $ 100000 45.00 $ Quarter 1 February March 10000 40000 45.00 $ 45.00 $ 450,000 $ 1.800.000 $ Total 150000 45.00 S 6.750,000 $ April 40000 45.00 1.800.000 $ $ 1.350,000 $ 4,500,000 $ January $ $ Beginning accounts receivable December January February March Total cash collection 810.000 1.800.000 $ $ Scheduled of Expected Cash Collections February March Total $ 810.000 2.700.000 $ 4.500.000 1.800.000 $ 270.000 S 2.070.000 $ 180,000 $ 180.000 4.500,000 $ 450,000 $ 7.560.000 5 2,610,000 $ Quarter 2 May June Budget for a retail company ID O 1 All 3 Months Ouarter 1 December January February 30000 100000 10000 45 405 EON March 40000 Sales Budget Budgeturit Saler Selling Price per unit of sales collected in the month of sales of sales collected in the 1st month after sales Total April 150000 40000 A SON SON 10% Purchase Budget (merchandisine) of next quarter's sales in ending purchases inventory Unit product cost % of purchases paid in quarter purchased % of purchases paid in the 1st quarter after sale $ 35.00 ON 100% $ 12.00 Selling and Administrative Expence Budget Variable selling and administrative Expence per case Fixed selling and administrative expence per quarter Advertising Rent Depreciation $ $ 104.000 35.000 75,000 $ Cash budget Minimum Cash balance s 80,000 12% nhual rate imple interest rate per month 3% Assumtion Sales budget Purchases Budget A Purchase Budget 8 Purchase Budget C S&A Budget Cash Budget A Cash Budget B Cash ABC Merchandising Company Sales Budget For the first quarter ended March 2020 Totd Budgeted unit sales selling price per unit Total sales December 30000 45.00 $ 1.350.000 $ January 100000 45.00 $ 4,500,000 $ Quarter 1 February March 10000 40000 45.00 $ 45.00 $ 450,000 $ 1.800.000 $ 150000 45.00 5 6,750,000 $ April 40000 45.00 1,800,000 $ $ 5 S Beginning accounts receivable December january February March Total cash collection Scheduled of Expected Cash Collections January February March Total 810,000 $ 810.000 1.800.000 2.700.000 5 4,500,000 $ 1.800.000 $ 270.000 $ 2.070.000 $ 180,0005 180.000 2,610,000 $ 4.500,000 $ 450,000 $ 7.560.000 $ Purchases Budget - Merchandising Company For the first quarter ended March 2020 Budget unit sales Add desired ending merchandise Inventory Total needs Less beginning Merchandise Inventory Required purchases Unit product cost Cost ofinventory purchases Quarteri December January February March Total 30000 100000 10000 40000 150000 50000 5000 20000 20000 20000 80000 105000 30000 60000 170000 15000 50000 5000 20000 50000 65000 55000 25000 40000 120000 $ 35.00 $ 35.00 $ 35.00 $ 35.00 $ 35.00 S 2.275.000 $ 1.925.000 $ 875,000 $ 1,400,000 $ 4,200,000 ABC Merchandising Company Budger cash disbursements for Merchandise purchases: For the quarter ended March 2020 Quarter 1 December January February March Total $ 2.275.000 $ $ 2.275.000 s $ 1,975.000 $ $ 1.925.000 $ $ 875,000 $ 875,000 $ s $ $ $ 2.275.000 1.925,000 $ 875.000 $ 5,075,000 Beginning accounts payable december) January Purchases February Purchses March Puchoses Total cash disbursements for merchandise purchases Purchases Budget-Merchandising Company For the first quarter ended March 2020 Quarter 150000 36000 186000 90000 Budget unit sales Add desired ending merchandise Inventory Total needs Less beginning Merchandise Inventory Required purchases Unit product cost Cost of inventory purchases 96000 35.00 3.360.000 December January February March Total 30000 100000 10000 40000 90000 9000 36000 36000 120000 109000 46000 76000 27000 90000 9000 36000 93000 19000 37000 40000 $ 35.00 S 35.00 $ 35.00 $ 35.00 $ $ 3.255,000 S 665.000 $ 1.295,000 $ 1.400.000 $ ABC Merchandising Company Budger cash disbursements for Merchandise purchases For the quarter ended March 2020 Quarter 1 December January February March Total $ 3,255,000 $ S $ s 5 565,000 $ S S 5 $ 1.295.000 $ S S S s $ 3,255,000 $ 655.000 1.295,000 $ Beginning accounts payable (december January Purchases February Purchses 3.255,000 665.000 1.295,000 March Puchases 5,215.000 Total cash disbursements for merchandise purchases D Purchases Budget - Merchandising Company For the first quarter ended March 2020 5 10000 7 150000 4000 8 Budget unit sales Add desired ending merchandise Inventory Total needs Less beginning Merchandise Inventory Required purchases Unit product cost Cost of inventory purchases 154000 10000 144000 35.00 5,040,000 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Quarter December January February March Total 30000 100000 40000 10000 1000 4000 4000 40000 101000 14000 44000 3000 10000 1000 4000 37000 91000 13000 40000 $ 35.00 $ 35.00 $ 35.00 S 35.00 $ $ 1.295,000 $ 3.185.000 $ 455.000 5 1,400,000 5 ABC Merchandising Company Budger cash disbursements for Merchandise purchases: For the quarter ended March 2020 Quarter 1 December January February March Total $ 1.295,000 $ $ 5 5 3,185,000 $ $ 5 5 5 455,000 $ $ 5 $ $ 1.295,000 3.185.000 455.000 $ 1.295,000 3.185.000 455,000 Beginning accounts payable december January Purchase February Purchses March Puchoses Totalcash disbursements for marchandise purchases 4.935.000 ABC Merchandising Company Selling and Administrative Expence Budget For the first quarter ended March 2020 Quarter 1 January February 100000 10000 12.00 $ 12.00 $ 1.200,000 $ 120.000 $ March Total 40000 150000 12.00 $ 12.00 480.000 $ 1.800.000 $ $ $ Budgeted units sales (schedule 1) variable selling and administrative expence per unit Total variable selling and administrative expence per unit Fixed selling and administrative expenses Advertising Rent Depreciation Totalfixed selling and administrative expenses Total selling and administrative expenses Less depreciation Cash disbursements for selling and administrative expenses S S 10 11 12 13 14 15 16 17 18 19 20 $ 104,000 $ 35,000 5 76,000 S 215.000 $ 1,415,000 $ 76,000 $ 1,339.000 104.000 $ 35,000 $ 76,000 $ 215,000 S 335,000 $ 76.000 $ 259.000 104.000 $ 312,000 35.000 5 105,000 76,000 $ 228,000 215.000 $ 645.000 695.000 $ 2,445.000 75,000 $ 228.000 619,000 $2,217.000 $ $ S ABC Merchandising Company Cnh Buc: For the first quarter ended March 2020 January $ February 30.000 $ Quarter 1 March 80.000 $ Total 80,000 S 80,000 8 9 $ 2.610.000 $ 450.0005 4.500.000 $ 4.580.000 $ 7.560,000 7.640,000 $ 2.690.000 $ 530.000 Beginning cash balance add cash reciepts Cash collections from customers Total cash available Less cash disbursements Total cashdisbursements for merchandise purchases Schedule ? Selling and administrative Total cash disbursements Excess deficiency of cash available over disbursement Financing Borrowing at the beginnings of the month) Repayments at end of the month interest Total financing Ending cash balance $ 5 s $ 2.275,000 1.339.000 3,614,000 1924,000) 1.925.000 5 259,000 $ 2.184.000 5 2.396,000 5 875.0005 619.000 $ 1,494,000 1964,000) $ 10 11 12 13 14 15 16 17 18 19 20 21 5.075.000 2,217.000 7.292,000 348,000 5 1,004,000 5 12.316.000) S 1044.000 5 0268.000) 5 0.316.000) 1.044.000 5 0268,000 1,004,000 $ 80,000 5 80.000 $ 80,000 $ 80.000 ABC Merchandising Company Cash Budget For the first quarter ended March 2020 6 Quarter 1 January February March $ 80,000 $ 80.000 $ Total 80.000 $ 80.000 $ 2.610.000 S 4.500.000 $ $ 2.690,000 $4,580,000 $ 450.000 $ 7,560,000 530,000 $ 7,640,000 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Beginning cash balance add cash recepts Cash collections from customers Total cash available Less cash disbursements Total cashdisbursements for merchandise purchases Schedule 2 Selling and administrative Total cash disbursements Excess deficiency at cash available over disbursement Financing Borrowing at the beginnings of the month) Repayments at end of the month) Interest Total financing Ending cash balance $ 3.255.000 $ 665,000 $1.295.000 $ 5.215.000 $1,339,000 $ 259.000 $ 619.000 5 2.217.000 $ 4,594,000 5 924,000 $ 1.914,000 $ 7,432,000 $ 11,904,000) S 3,656,000$ 1,384,000) $ 208.000 5 1.984,000 S 0.576,000) 1.464.000 5 128.000) 5 128.000) 1.084.0005 0.576,000) 1.4640005 80.000 80.000 80.000 $ 5 80,000 ABC Merchandising Company Cash Budget For the first quarter ended March 2020 5 Quarter 1 January February March Total $ 80.000 $ 80.000 $ 80,000 $ 80.000 7 8 $ 2.610.000 $ 4.500.000 $ $ 2.690.000 $ 4.500.000 450,000 $ 7.560.000 530,000 $ 7.640.000 Seginning cash balance add cash reciepts Cash collections from customers Total cash available Less cash disbursements Totalcashdisbursements for merchandise purchases Schedule 2 Selling and administrative Totalcash disbursements Excess deficiency of cash available over disbursement Financing Borrowing at the beginning of the month Repayments at end of the month) Interest Totalfloncini Ending cash balance 10 11 12 13 14 15 16 17 18 19 20 21 $ 1.295,000 S 3,185,000 $ 455,000 $4.935.000 5 1,339,000 S 259.000 619,000 $ 2.217.000 $ 2.634.000 $3,444,000 $1,074,000 S 7.152.000 $ 56.000 $ 1.136.000 $ 1544000) $ 488.000 $ 24.000 $ 1.056,000) $ 624.000 $ 1408.000) 24,000 5 1,056,000) 5 10.000 80,000 674.000 5 80,000 $ 140.000 30.000 $ ABC Merchandising Company Budgeted Income Statement For the first quarter ended March 2020 3 1 $ 5 7 3 $ Sales Cost of goods sold Gross Margin Selling and Administrative Expenses Net Operating income Interest Expense Net Income 6.750,000 5,250,000 1.500.000 2.445.000 $ $ 1945.000) S $ S 1945,000) 0 11 2 3 14 15 16 17 18 19 20 B 2 ABC Merchandising Company Budgeted Income Statement For the first quarter ended March 2020 3 4 5 6 7 8 9 10 11 12 13 14 Sales Cost of goods sold Gross Margin Selling and Administrative Expenses Net Operating income Interest Expense $ $ $ $ 6.750.000 5,250,000 1,500,000 2,445.000 1945,000) $ $ $ Net Income 1945.000) 15 16 17 18 19 20 2 3 ABC Merchandising Company Budgeted Income Statement For the first quarter ended March 2020 4 5 6 $ $ 7 Sales Cost of goods sold Gross Margin Selling and Administrative Expenses Net Operating income Interest Expense 8 6.750,000 5.250.000 1.500.000 2,445.000 $ $ $ 9 1945.000) S $ 10 11 12 13 Net Income $ 1945.000) 14 15 16 17 18 19 20 ABC Merchandising Company Sales Budget For the first quarter ended March 2020 January Budgeted unit sales selling price per unit Total sales December 30000 45.00 $ 100000 45.00 $ Quarter 1 February March 10000 40000 45.00 $ 45.00 $ 450,000 $ 1.800.000 $ Total 150000 45.00 S 6.750,000 $ April 40000 45.00 1.800.000 $ $ 1.350,000 $ 4,500,000 $ January $ $ Beginning accounts receivable December January February March Total cash collection 810.000 1.800.000 $ $ Scheduled of Expected Cash Collections February March Total $ 810.000 2.700.000 $ 4.500.000 1.800.000 $ 270.000 S 2.070.000 $ 180,000 $ 180.000 4.500,000 $ 450,000 $ 7.560.000 5 2,610,000 $