# Shopping budget

The purchasing budget is a type of budget that limits the amount of raw materials that a company purchases. Your goal is to optimize resources and keep track of sales and inventory.

The purchase budget, also known as the purchase budget for raw materials, includes the monetary allocation of a company for the acquisition of raw materials that are transformed into the production of goods and services. This budget helps to keep track of the sales made and to avoid the company having to stop production due to lack of raw materials.

In addition to this, the purchase budget allows you to optimize resources, avoiding large purchases that suffer wastage. This gives the option of allocating that money to other actions that may be more beneficial for the company.

On the other hand, it also offers the possibility of improving the company's position vis-à-vis suppliers. This is achieved thanks to a better estimate of the raw material needs for larger purchases.

Another benefit of the raw material purchasing budget is that it reduces the cost of storage. The company will only acquire those resources that it really needs, so it will not store more than what the market requires.

Finally, it should be noted that this budget is within the production budget. In this way, it is essential to develop and update the purchasing budget in order to guarantee the viability of the company.

## How to make a shopping budget?

In order to obtain the budget for raw materials, it is necessary to have the following figures recorded:

• Production cost of the total quantity demanded in a given period.
• Value of raw materials in inventory.
• Inventory necessary to cover the total demand.

Once the above quantities have been calculated, the purchase budget is obtained through the following formula:

PC = Cost of Production + Inventory Needed - Inventory Raw Materials

After solving that formula, we will obtain what the company's purchasing budget is.

## Purchase budget example

Suppose we have a clothing factory and our total demand has a cost of € 250,000. In addition to this, in our inventory there is fabric valued at € 50,000. Finally, we have € 400,000 of raw materials in our warehouse to be able to meet the demand without any problem.

To obtain the purchase budget we solve the previous formula:

PC = 250,000 + 400,000 - 50,000

PC = € 600,000

Our purchasing budget would be € 600,000

In conclusion, the purchasing budget is the amount of money that a company must spend on raw materials to produce its products in order to satisfy demand without difficulties.

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