Lakeside Components wishes to purchase parts in one month for sale in the next. On May 31, the company has 12,000 parts in stock, although sales for the next month (June) are estimated to total 11,600 parts. Total sales of parts are expected to be 10,600 in July and 9,800 in August. Parts are purchased at a wholesale price of $30. The supplier has a financing arrangement by which Lakeside Components pays 50 percent of the purchase price in the month when the parts are delivered and 50 percent in the following month. Lakeside purchased 16,000 parts in May.
Required:
a. Estimate purchases (in units) for June and July.
b. Estimate the cash required to make purchases in June and July.
a. | Lakeside Components | ||
Estimated Purchases | |||
For the Months of June and July | |||
June | July | ||
Budgeted sales (units) | 11600 | 10600 | |
Budgeted ending inventory (units) | 10600 | 9800 | |
Total quantity required (units) | 22200 | 20400 | |
Beginning inventory (units) | 12000 | 10600 | |
Estimated purchases (units) | 10200 | 9800 | |
Price per unit $ | $ 30.00 | $ 30.00 | |
Total cost of estimated purchases $ | 306000 | 294000 | |
b. | Lakeside Components | ||
Schedule of Estimated Cash Requirement for Purchases | |||
For the Months of June and July | |||
June | July | ||
Estimated purchases $ | 306000 | 294000 | |
Cash disbursements for: | |||
May purchases (16000 x $30 x 50%) | 240000 | ||
June purchases | 153000 | 153000 | |
July purchases | 147000 | ||
Total estimated cash requirement for purchases $ | 393000 | 300000 |
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