BUDGETING MERCHANDISE

Budgeting Merchandise“A merchandise Budgeting in a Retail is plan covering all phase of Retail operation for definite period in the future. It is a formal expression of policies, plan, objectives and goal laid down in advance by the top management for the concern as a whole and for each for it sub-divisions.”Every business works within the confines of a budget, which indicates how much it can spend on various things. One key budget element for a retailer is merchandise. Retailers must analyze data to create merchandise budgets that are affordable and put the business in the best position to make a profit.

Objectives of Budgeting Merchandise

To compel planning, this is a most important feature of merchandise budgeting, because the retail merchandiser is forced to look ahead, set target, anticipated problem and give the organization purpose and direction.

To communicate idea and plans to everyone affected by them. It necessary to have a formal system to make sure that each respective Manager is aware of what he is supported to be doing.

Objectives of Budgeting Merchandise

To co-ordinate the activities of different department or sub-unit of the organisation. This concept of co-ordination implies, for example, that the merchandiser should base its budget on merchandise requirement like supplier, vendor etc. and that the merchandise budget should in turn be based on sales expectation

To established a system of control by having a plan against which actual result can be progressively compared

To motivate the employee to improve their performance.

Component of Budgeting Merchandise

Cost of goods from wholesalerOther expenses like Shipping,

inventory management software, labour for shorting, counting stock and storage.

Cost for marketing the product, since buying more goods will only be profitable if customers buy them

Impact:

Positive ImpactExample: ITC Wills Lifestyle has

set static budget for the year 2012 is Rs.5 crores for camac street store, and after complete the fiscal year they achieve the total target and company earned good revenue, this is the example of positive impact of budget.

Impact:

Negative Impact Example: Titan industries limited

has set the static budget Rs.10 crores for the year 2012 for Tanisqe store at Bow bazaar. And end of the fiscal year they achieve only Rs. 7.5 core which has not been fulfilled the set budget and create a loss for company so, it is a example of negative impact of budget.

Method for Budgeting Merchandise

Basically two type of Budget are uses in Retail:-

Static BudgetFlexible Budget

One technique that a retail business uses to create an accurate merchandise budget is demand forecasting. Understanding what consumer demand for merchandise is likely to be in the future allows a retailer to devote adequate resources to buying stock and managing inventory so as not to miss sales opportunities. Demand forecasting relies on an analysis of past sales data, as well as a projection based on upcoming products, seasonal changes in demand, trends in customer buying habits and plans for expansion at the retailer.

Method for Budgeting Merchandise

Steps:Set margin and inventory turn goalsSeasonal sales forecast for categoryBreakdown sales forecast by monthPlan reductions – markdowns,

inventory lossDetermine stock needed to support

forecasted salesDetermine “open to buy” for each

month

Method for Budgeting MerchandiseExample, ITC Wills Lifestyle uses

technique to compute the Merchandise Budgeting that is given below:-

Advantage

Define the objectives as whole.Define result department has to

achieveIt helps to measure the actual

performance along with the variance.

It provides a system whereby resource of the organigation is used in the most efficient way possible.

AdvantageIt indicates efficiency with which

various activities of the org. have been co-ordinate.

It establishes a basis for internal audit by means of regular examination of departmental result

It provides a basis for measuring productivity efficiency with a view to paying a bonus to employee.

Disadvantage:

Wrong demand forecasting during make the budget makes huge loss.

Sometime budget increase heavy workload in between the employee which resulting of low performance.

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