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.

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