Question

Exercise 13-31 Estimate Purchases and Cash Disbursements (LO 13-4, 5)

Lakeside Components wishes to purchase parts in one month for sale in the next. On June 1, the company has 14,000 parts in stock, although sales for June are estimated to total 12,100 parts. Total sales of parts are expected to be 9,200 in July and 14,600 in August.

Parts are purchased at a wholesale price of $25. 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 12,000 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

Answer
a. Estimate purchases (in units) for June and July:
	June	July
Sales(in unit)	12,100	9,200
Add: Ending Inventory	9,200	14,600
Less: Opening inventory	14,000	9,200
Merchandise to be purchased	7,300	14,600
b. Estimate the cash required to make purchases in June and July:
	June	July
Payment for purchase in current month	7300 x 25 x 70% = $1,27,750	14600 x 25 x 70% = $255,500
Payment for purchase in last month	12,000 x25 x 30% = $90,000	7300 x 25 x 30% = $ 54,750
Total cash required	$                              217,750	$                               310,250