Lakeside Components wishes to purchase parts in one month for sale in the next. On June 1, the company has 15,000 parts in stock, although sales for June are estimated to total 13,600 parts. Total sales of parts are expected to be 10,500 in July and 12,700 in August. Parts are purchased at a wholesale price of $30. 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 below.

Explanation:

Giving the following information:

Beginning inventory (parts) = 15,000 parts

Sales June = 13,600

Sales July = 10,500

Sales August = 12,700

Parts are purchased at a wholesale price of $30.

Purchasing arrangement:

60 percent on the month of the purchase.

40 percent in the following month.

Lakeside purchased 14,000 parts in May.

A) To calculate the purchase for June and July, we need to use the following formula:

Purchases = sales + desired ending inventory - beginning inventory

June = 13,600 - 15,000 = - 1,400

July = 10,500 - 1,400 = 9,100

B) Cash Required:

Purchase from the month

Purchase from the month before

June:

Purchase from the month = 0

Purchase from the month before = (14,000*30) * 0.4 = 168,000

July:

Purchase from the month = (9,100*30) * 0.6 = 163,800

Purchase from the month before = 0