Lakeside Components wishes to purchase parts in one month for sale in the next. On June 1, the company has 11,000 parts in stock, although sales for June are estimated to total 11,000 parts. Total sales of parts are expected to be 12,000 in July and 15,000 in August.

Parts are purchased at a wholesale price of $20. The supplier has a financing arrangement by which Lakeside Components pays 60 percent of the purchase price in the month when the parts are delivered and 40 percent in the following month. Lakeside purchased 14,000 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.

Instructions are listed below.

Explanation:

Giving the following information:

On June 1, the company has 11,000 parts in stock, although sales for June are estimated to total 11,000 parts. Total sales of parts are expected to be 12,000 in July and 15,000 in August.

Parts are purchased at a wholesale price of $20. The supplier has a financing arrangement by which Lakeside Components pays 60 percent of the purchase price in the month when the parts are delivered and 40 percent in the following month.

1) Purchase in units:

June:

Sales in June = 11,000

Ending inventory = 12,000

Beginning inventory = (11,000)

Total = 12,000

July:

Sales in June = 12,000

Ending inventory = 15,000

Beginning inventory = (12,000)

Total = 15,000

2) Cash budget:

June:

Purchase in June = (12,000*20) * 0.6 = 144,000

From May = (14,000*20) * 0.4 = 112,000

Total = 256,000

July:

Purchase in July = (15,000*20*0.6) = 180,000

From June = (12,000*20*0.4) = 96,000

Total = 276,000