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12 December, 12:50

Midland Company buys tiles and prints different designs on them for souvenir and gift stores. It buys the tiles from a small company in Europe, so at all times it keeps on hand a stock equal to the tiles needed for three months’ sales. The tiles cost $0.75 each and must be paid for in cash. The company has 28,000 tiles in stock. Sales estimates, based on contracts received, are as follows for the next six months: January 13,300 February 18,700 March 13,700 April 15,100 May 8,900 June 7,800

Required: a. & b. Estimate purchases (in units) and cash required to make purchases in January, February, and March.

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  1. 12 December, 16:20
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    January

    purchases = 32,800 units

    required cash to pay for purchases = $24,600

    February

    purchases = 8,900 units

    required cash to pay for purchases = $6,675

    March

    purchases = 7,800 units

    required cash to pay for purchases = $5,850

    Explanation:

    each tile costs $0.75, paid in cash, three month stock

    28,000 tiles in stock

    estimated sales:

    January 13,300 February 18,700 March 13,700 April 15,100 May 8,900 June 7,800

    January

    beginning inventory January 28,000

    estimated sales 13,300

    desired ending inventory = sales for next three months = 18,700 + 13,700 + 15,100 = 47,500

    purchases = 47,500 + 13,300 - 28,000 = 32,800

    required cash to pay for purchases = 32,800 x $075 = $24,600

    February

    beginning inventory January 47,500

    estimated sales 18,700

    desired ending inventory = sales for next three months = 13,700 + 15,100 + 8,900 = 37,700

    purchases = 37,700 + 18,700 - 47,500 = 8,900

    required cash to pay for purchases = 8,900 x $075 = $6,675

    March

    beginning inventory January 37,700

    estimated sales 13,700

    desired ending inventory = sales for next three months = 15,100 + 8,900 + 7,800 = 31,800

    purchases = 31,800 + 13,700 - 37,700 = 7,800

    required cash to pay for purchases = 7,800 x $075 = $5,850
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