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Midland Company buys tiles and prints different designs on them for souvenir and gift stores. It buys the tiles from a small company in Europe, so at all times it keeps on hand a stock equal to the tiles needed for three months’ sales. The tiles cost $3 each and must be paid for in cash. The company has 28,000 tiles in stock. Sales estimates, based on contracts received, are as follows for the next six months:
January 11,900
February 18,700
March 13,600
April 14,700
May 10,300
June 7,100
Required: a. & b. Estimate purchases (in units) and cash required to make purchases in January, February, and March.
Purchases in units is 30,900 units
Purchases amount is $92,700
Explanation:
The purchases in January is the sales estimate plus the desired ending inventory minus the opening stock of inventory.
The desired closing inventory in the sense implies three months future sales units i.e February,March and April sales units.
Sales in January 11,900
desired closing inventory(18,700+13,600+14,700)47,000
Total required units 58,900
Opening stock of inventory 28,000
Total purchases 30,900
Total purchases in dollar terms=purchases units*sales price per unit
sales price per unit is $3
total purchases in dollar terms=$3*30,900=$92,700
