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 11,000 parts. Total sales of parts are expected to be 11,000 in July and 10,500 in August.

Parts are purchased at a wholesale price of $25. 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 14,000 parts in May.

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

	June	July
Merchandise to be purchased in units

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

Month of Payment	Total
June
July

Answer 1

a)

	June	July	August
Sales units	11,000	11,000	10,500
Purchase unit	11,000	10,500	-

Units to be sold next month are purchased one month before.

Hence, units to be sold in July would be purchased in June and units to be sold in August would be purchased in July.

b)

	May	June	July
Purchase units	11,000	10,500	14,000
Price per unit	$25	$25	$25
Total Purchases	$275,000	$262,500	$350,000

Schedule of Cash payment
	June	July
For May purchases	350,000 x 40% = 140,000	0
For June Purchases	275,000 x 60% = 165,000	275,000 x 40% = 110,000
For July Purchases	0	262,500 x 60%= 157,500
Total Cash Payment	$305000	$267500

Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.

Thanks