Question

In: Accounting

Dawes Designs buys T-shirts for clubs, teams, and other organizations. Dawes takes the

Dawes Designs buys T-shirts for clubs, teams, and other organizations. Dawes takes the shirts and adds the organization's logo. Because of the uncertainty in the timing of the sales and to avoid stock outages, Dawes tries to maintain an inventory of shirts equal to two months of sales. The shirts cost $12.50 each and must be paid for in cash. On June 30 of the current year, the company expects to have 16,200 shirts in stock. Sales estimates, based on contracts received and historical data, are as follows for the next six months:

July7,620
August10,590
September8,060
October8,610
November6,080
December4,760

Required:

a. & b. Estimate purchases (in units) and cash required to make purchases in July, August, and September.

 JulyAugSept
Units to be purchased10070  
Est. Cost125875 

Solutions

Expert Solution

Estimate purchases (in units):

Particulars July August September
Estimated Sales 7,620 10,590 8,060
Add: Desired ending inventory 18,650 16,670 14,690
Total requirements 26,270 27,260 22,750
Less: Expected beginning inventory (16,200) (18,650) (16,670)
Purchases in units 10,070 8,610 6,080

cash required to make purchases in July, August, and September:

Particulars July August September
Purchases in units 10,070 8,610 6,080
The purchase price per shirt $12.50 $12.50 $12.50
Cash payments for purchases $125,875 $107,625 $76,000

Note:

Given the Expected beginning inventory for July = 16,200

Required ending inventory is given as 2 months of sales.

Therefore, ending inventory in July = sales for August and September = 10,590+8,060 = 18,650

Ending for August = September and October sales = 8,060+8,610 = 16,670

Ending inventory for September = sales for October and November = 8,610+6,080 = 14,690

Beginning inventory of august = ending inventory of July and vice versa

Beginning inventory of august = ending inventory of July and vice versa

Junaid answered 1 year ago
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