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 13,800 parts. Total sales of parts are expected to be 9,600 in July and 12,400 in August. Parts are purchased at a wholesale price of $20. The supplier has a financing arrangement by which Lakeside Components pays 70 percent of the purchase price in the month when the parts are delivered and 30 percent in the following month. Lakeside purchased 17,000 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.

Answer 1

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

• June ⇒ 11,400 parts
• July ⇒ 12,400 parts

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

• June ⇒ $261,600
• July ⇒ $242,000

Step-by-step explanation:

During June, Lakeside needs to purchase (expected sales - beginning inventory) + expected sales for net month = (13,800 - 12,000) + 9,600 = 11,400 parts

During July, Lakeside needs to purchase expected sales for net month = 12,400 parts

During June, Lakeside will need to pay (previous month's purchase x 30%) + (current month's purchase x 70%) = (17,000 parts x $20 x 30%) + (11,400 x $20 x 70%) = $102,000 + $159,600 = $261,600

During June, Lakeside will need to pay (previous month's purchase x 30%) + (current month's purchase x 70%) = (11,400 parts x $20 x 30%) + (12,400 x $20 x 70%) = $68,400 + $173,600 = $242,000