Question

San Fernando Fertilizer Company plans to sell 240,000 units of finished product in July and anticipates a growth rate in sales of 6 percent per month. The desired monthly ending inventory in units of finished product is 80 percent of the next month's estimated sales. There are 192,000 finished units in inventory on June 30. Each unit of finished product requires 5 pounds of raw material at a cost of $1.75 per pound. There are 720,000 pounds of raw material in inventory on June 30.

Required:

1.	Compute the company's total required production in units of finished product for the entire three-month period ending September 30. (Do not round intermediate calculations. Round your final answer to the nearest unit.) Total required production in units

  

2.

Independent of your answer to requirement (1), assume the company plans to produce 680,000 units of finished product in the three-month period ending September 30, and to have raw-material inventory on hand at the end of the three-month period equal to 25 percent of the use in that period. Compute the total estimated cost of raw-material purchases for the entire three-month period ending September 30. Total estimated cost

  

Answer 1

	July	August	September	Total
Budgted Sales	240,000.00	254,400.00	269,664.00	764,064.00
Add: Desired Ending Sales	203,520.00	215,731.20	228,675.07	228,675.07
Total required Units	443,520.00	470,131.20	498,339.07	992,739.07
Less: Beginning Inventory	192,000.00	203,520.00	215,731.20	192,000.00
Required Production	251,520.00	266,611.20	282,607.87	800,739.07
Hence, total required prodution in units = 800,739 units
2.Desired Production	680,000.00
raw material per unit	5.00
Raw material required for production	3,400,000.00
Add: Desired ending inventory	850,000.00
Total required	4,250,000.00
Less: Beginning Inventory	720,000.00
Required purchases	3,530,000.00
Cost per unit	1.75
Total Estimated cost	6,177,500.00