Question

Greener Grass Fertilizer Company plans to sell 240,000 units of the finished product in July and anticipates a growth rate in sales of 4 percent per month. The desired monthly ending inventory in units of finished product is 85 percent of the next month’s estimated sales. There are 204,000 finished units in inventory on June 30. Each unit of finished product requires four pounds of raw material at a cost of $1.95 per pound. There are 830,000 pounds of raw material in inventory on June 30. Required: Compute the company’s total required production in units of finished product for the entire three-month period ending September 30. Independent of your answer to requirement (1), assume the company plans to produce 620,000 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.

Answer 1

1)	Greener Grass
	Production Budget
		July	August	September	October	Nov
	Budgeted Unit Sales	240,000	249,600	259,584	269,967	280,766
	Add: Desired units of ending finished goods inventory	212,160	220,646	229,472	238,651
	Total Needs	452,160	470,246	489,056	508,619	280,766
	Less: Units of beginning finished goods inventory	204,000	212,160	220,646	229,472	238,651
	Required production in Units	248,160	258,086	268,410	279,146
	1) Total Required production in Units (in 3 Months)	774,656
2)	Plan Production	620,000	Units
	Add: Raw material inventory desired	620,000
	Less: Units of beginning raw material inventory	830,000
	units of raw materials to be purchased	410,000
	Cost per pound	1.95
	Total estomated cost	799,500
3)	Greener Grass
	Direct Material Budget
		July	August	September	October	Nov
	Required production in Units of finished goods	248,160	258,086	268,410	279,146	-
	Units of raw material needed per Units of finished goods	4	4	4	4
	Units of raw material needed to meet production	992,640	1,032,346	1,073,639	1,116,585	-
	Add: Desired units of ending raw material inventory	258,086	268,410	279,146	-
	Total units of raw material inventory needed	1,250,726	1,300,755	1,352,786	1,116,585
	Less: Units of beginning raw material inventory	248,160	258,086	268,410	279,146
	units of raw materials to be purchased	1,002,566	1,042,669	1,084,376	837,439