Question

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 26,000 tiles in stock. Sales estimates, based on contracts received, are as follows for the next six months: January 12,000 February 17,000 March 12,500 April 13,600 May 9,100 June 6,300 Required: a. & b. Estimate purchases (in units) and cash required to make purchases in January, February, and March.

Answer 1

Answer:

(i) 29,100; $29,100

(ii) 9,100; $9,100

(iii) 6,300; $6,300

Explanation:

January:

Units to be purchased:

= Sales + Closing stock - opening stock

= 12,000 + (17,000 + 12,500 + 13,600) - 26,000

= 29,100

Estimated cost = Units to be purchased × Per tile cost

                         = 29,100 × $1

                         = $29,100

February:

Units to be purchased:

= Sales + Closing stock - opening stock

= 17,000 + (12,500 + 13,600 + 9,100) - 43,100

= 17,000 + 35,200 - 43,100

= 9,100

Estimated cost = Units to be purchased × Per tile cost

                         = 9,100 × $1

                         = $9,100

March:

Units to be purchased:

= Sales + Closing stock - opening stock

= 12,500 + (13,600 + 9,100 + 6,300) - 35,200

= 12,500 + 29,000 - 35,200

= 6,300

Estimated cost = Units to be purchased × Per tile cost

                         = 6,300 × $1

                         = $6,300