Lakeside Components wishes to purchase parts in one month fo

Lakeside Components wishes to purchase parts in one month for sale in the next. On May 31, the company has 12,000 parts in stock, although sales for the next month (June) are estimated to total 11,600 parts. Total sales of parts are expected to be 10,600 in July and 9,800 in August. Parts are purchased at a wholesale price of $30. The supplier has a financing arrangement by which Lakeside Components pays 50 percent of the purchase price in the month when the parts are delivered and 50 percent in the following month. Lakeside purchased 16,000 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.

Solution

a. Lakeside Components Estimated Purchases For the Months of June and July June July Budgeted sales (units) 11600 10600 Budgeted ending inventory (units) 10600 9800 Total quantity required (units) 22200 20400 Beginning inventory (units) 12000 10600 Estimated purchases (units) 10200 9800 Price per unit $ $    30.00 $    30.00 Total cost of estimated purchases $ 306000 294000 b. Lakeside Components Schedule of Estimated Cash Requirement for Purchases For the Months of June and July June July Estimated purchases $ 306000 294000 Cash disbursements for: May purchases (16000 x $30 x 50%) 240000 June purchases 153000 153000 July purchases 147000 Total estimated cash requirement for purchases $ 393000 300000