Here is my 100% Achievement guide and full walkthrough so you don't miss a thing.
On level 4 (Alien Pool Party) we get told we can now target items and turn it into ammo!
To do that, target any small item (bin, umbrella, chair etc) hit the
button a few times and a small portal appears transforming that item into ammo.
Be warned that the ammo produced can be random through the game though.
Go to 42:55 in my part 1 video to see where and how to unlock this
Hope this helps!