Prof.

Manohar Pandit

Basic stock is defined as the minimum stock that

should be maintained at all times
Advantages
Provides some assortment from which customers may
select merchandise
Protects department against stock contingencies
Recommended when annual stock turnover is 6 turns
or less per year, at higher stock turns the basic stock
method results is an unrealistic basic stock figure
Most suited when stores has high proportion of nonfashion merchandise
Assumption is the basic inventory on hand remains
constant regardless of the rate of sale

BOM Stock = Sales for the month + Basic stock

Basic stock = Avg stock Avg monthly sales
Sales for the season

Avg stock for the season =-----------------------------Stock Turnover for season

A dept stores has a planned stock turnover of 4 and planned sales of

Rs.160,000 for six months season. Plan BOM stock for Apr if planned sales for
Apr are Rs.20,000
Avg stock for season = 160,000/4 = Rs.40,000(Sales for season/Stock turnover for
season)

Avg Monthly sales = 160,000/6 = Rs.26,667 (Sales for season/No. months in season)
BOM Stock = 20,000+(40,000-26,667) (Sales for month + Basic stock)
= 20,000+ 13,333
= Rs. 33,3233

Weeks Supply Method is defined as a method of

planning stock whereby the needed inventory is equal
to the sales for a specific no. of weeks
Applicable when not much fluctuation in sales volume
Stores plan sales by weeks not by months
The no. of weeks supply that is to be kept on hand
during a period is dependent on the rate of stock
turnover required for the stores of dept.

If stock turnover of 10 times is desired then how many weeks supply should
be on hand at all times?
Weeks Supply
= 52 weeks/desired stock turnover
= 52 weeks/10
= 5.2 weeks supply needed on hand every week

Stocks-Sales Ratio is stock on hand at the beginning of the

month or sometimes end of the month to the projected
retail sales for that month
If the ratio is known for the planned period then the
amount of stock that should be on the hand at the
beginning of the month can be planned

Stocks-Sales Ratio = BOM Retail Stocks / Sales for the month

Determine Sales Stock Ratio when BOM stock is Rs.50,000 and retail
sales are Rs.35,000?
Stocks-Sales Ratio = Rs.50,000 / Rs. 35,00
= 1.4286
The stores must have merchandise of Rs.143 in order to sell worth
Rs.100

BOM stocks that is needed can be determined if

planned sales and desired stock-sales ratio are
known
BOM Stokes = Planned Monthly Sales X Stock-Sales Ratio

The stores has planned sales of Rs.60,000 for the month of Apr.
Past records indicate a stocks-sales ratio of 5.4. What should
be the planned BOM stock for Apr?
BOM Stock = Planned Monthly Sales X Stocks-Sales Ratio
= Rs.60,000 X 5.4
= Rs. 324,000

Comparison of Stocks-Sales Ratio and Stock Turnover

Both provide relationship between sales and stock
Stocks-Sales Ratio differs from Stock Turnover
Period covered for SSR is usually shorter than that for STO.

SSR is figured for single month where as STO is based on

avg stock
SSR is based on stocks on hand at a specific time, usually the
beginning of the month, whereas STO is based on avg stock
The numerators and denominators are reversed
SSR is stock/net sales and STO is net sales/avg stock

Planning Reductions
Reductions reduce retail value of the inventory and include
markdowns, discounts to employees and customers,
and stock shortages
In developing merchandise plan reduction percents are
estimated on the basis of past experience as well as
current factors that may increase or decrease those
percents. Reductions must be realistic.
Reductions are expressed as a percent of net sales

Markdown % = Rs. Amount of Merchandise / Net Sales

Planned Rs. Markdown = Planned Sales X Planned Markdown %

Objective of merchandising planning is to assist buyer in

timing the purchase of goods in order to maintain a
balance stocks and sales through the season
Planned purchases are the amount of merchandise that
is planned for delivery during a given period without
exceeding the planned closing stock for that period
Should be adequate to cover sales and reductions to be
made during the month as well as provide inventory
that will allow the following months sales to be made
Purchases must be based on planned sales, stock and
markdown figures

Planned Purchases at Retail

= Sales + EOM Stock + Markdowns BOM Stock

Determine planned purchases for the month of Sept, given the

following information
Sales for Sept
Rs.190,000
Stock for Sept 1
Rs.318.200
Markdowns
Rs. 16,500
Stocks for Oct 1
Rs.304,800
Solution
Planned Purchases at Retail
= Sales + EOM Stock + Markdown + BOM Stock
= 190,000+304,800 +16,500 318,200
= Rs.193,100

Determine planned purchases for the month of Jun, Jul, Aug,

Sep, given following information
Month
Jun
Jul
Aug
Sep

Planned Sales
Planned BOM Stock
Planned Markdown
12,500
42,000
1,900
17,400
39,000
2,800
19,000
43,000
2,200
20,500
44,000
1,600

Solution
Planned Purchases at Retail
= Sales + EOM Stock + Markdowns + BOM Stock
Jun
Jul
Planned Sales
12,500
17,400
+ Planned EOM Stock
39,000
43,000
+ Planned Markdowns
1,900
2,800
- Planned BOM Stock
-42,000
-39,000
Planned Purchases
11,400

Aug
19,000
44,000
2,200
-43,000
24,200

22,200

Converting Retail Value to Cost Value

Planned purchases are determined at retail and must
be converted to cost if cost value is desired

Planned Purchase at Cost

= Planned Purchase at Retail

X (100% - Planned Markup%)

If planned retail purchases for the month were Rs.208,000 and

the planned markup was 45%, determine planned purchases
at cost?
Planned Purchase at Cost = 208,000 X (100%-45%)
= 208,000 X 55%
= Rs. 114,400