Question

Lakeside Components wishes to purchase parts in one month for sale in the next. On June 1, the company has 9,000 parts in stock, although sales for June are estimated to total 12,200 parts. Total sales of parts are expected to be 10,100 in July and 11,800 in August.

Parts are purchased at a wholesale price of $25. 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 17,000 parts in May.

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

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

Answer 1

Answer to A:

Estimated purchases (in Units) for June and July is 3200 and 10100 respectively

Working; Purchase for June= Expected sales - opening stock =12200-9000=3200

Purchases for July= expected sales for July =i,e 10100

Estimated purchase (in Units) in June and July is 13300 and 11800 respectively

Working; Purchase in June= Expected sales for June+ Expected sales for July-Opening stock =12200+10100-9000=13300

Purchase in July= expected sales for Aug= 11800

Answer to B

Estimated cash required to make purchase in June and July is $378750 and $313750 respectively

Working:

Cash required for June= 50% of cash for purchase made in May+ 50% of purchase made in June

=(17000*25*50%)+(13300*25*50%)

=212500+166250

=$378750

Cash required for July= 50% of cash for purchases made in June+ 50% of purchase made in July

=(13300*25*50%)+(11800*25*50%)

=166250+147500

=$313750