Question

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:

July	7,620
August	10,590
September	8,060
October	8,610
November	6,080
December	4,760

Required:

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

	July	Aug	Sept
Units to be purchased	10070
Est. Cost	125875

Answer 1

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