Pier 1 Imports prepares budgets to help manage the company. Suppose Pier 1 is budgeting for the fiscal year ended January 31, 20X4. During preceding fiscal year 20X3, sales totaled $1,777 million and cost of goods sold was $1,175 million. At January 31, 20X3, inventory stood at $366 million. During the upcoming 20X4 year, suppose Pier 1 expects cost of goods sold to increase by 8%. The company budgets next year’s ending inventory at $369 million.
One of the most important decisions a manager makes is how much inventory to buy. How much inventory should Pier 1 purchase during the upcoming year to reach its budgeted figures?