Exercise 13-30 Estimate Purchases and Cash Disbursements (LO 13-4, 5) Midland Co

Question

Exercise 13-30 Estimate Purchases and Cash Disbursements (LO 13-4, 5)

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 $1.00 each and must be paid for in cash. The company has 29,000 tiles in stock. Sales estimates, based on contracts received, are as follows for the next six months:

Required:

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

January 13,400 February 17,700 March 13,700 April 14,900 May 9,900 June 8,000

Explanation / Answer

Calculation of Purchases in units and cash required to make purchases January February March Sales units 13400 17700 13700 x Tiles required per sale unit 1 1 1 Total Tiles required for Sales 13400 17700 13700 Add : Ending Inventory of tiles 46300 38500 32800 Less : Beginning Inventroy of tiles 29000 46300 38500 Tiles Purchases (units) 30700 9900 8000 x Purchase rate per tile $1.00 $1.00 $1.00 Cash required to make purchases $30,700.00 $9,900.00 $8,000.00

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