Question

Lakeside Components wishes to purchase parts in one month for sale in the next. On June 1, the company has 12,000 parts in stock, although sales for June are estimated to total 12,900 parts. Total sales of parts are expected to be 10,500 in July and 11,100 in August.

Parts are purchased at a wholesale price of $15. The supplier has a financing arrangement by which Lakeside Components pays 60 percent of the purchase price in the month when the parts are delivered and 40 percent in the following month. Lakeside purchased 15,000 parts in May.

Required:

a. Estimate purchases (in units) for June and July.

June July

Merchandise to be purchased in units: ? units ? units

b. Estimate the cash required to make purchases in June and July.

Month of payment

June:

July:

Answer 1

Answer:

a. Estimate purchases (in units) for June and July.

• June = 11,400 parts
• July = 11,100 parts

b. Estimate the cash required to make purchases in June and July.

• June = $192,600
• July = $168,300

Explanation:

Beginning stock June 1 = 12,000 parts

June's expected sales = 12,900 parts

July's expected sales = 10,500 parts

August's expected sales = 11,100 parts

purchase price $15 per part

60% paid in current month and 40% paid in the next month

15,000 parts were purchased in May at $225,000 ($90,000 to be paid in June)

estimated purchases June = estimated sales June + estimated sales July - beginning inventory = 12,900 + 10,500 - 12,000 = 11,400

estimated purchases July = estimated sales July + estimated sales August - beginning inventory = 10,500 + 11,100 - 10,500 = 11,100

cash payments June = (May's purchases x 40%) + (June's purchases x 60%) = (15,000 x $15 x 40%) + (11,400 x $15 x 60%) = $90,000 + $102,600 = $192,600

cash payments July = (June's purchases x 40%) + (July's purchases x 60%) = (11,400 x $15 x 40%) + (11,100 x $15 x 60%) = $68,400 + $99,900 = $168,300