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 5 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

Ans)
Greener Grass Fertilizer Company
	July	August	September	Total	October
Sales =(A)	240000	249600	259584	749184	269967.36
	240000	(240000*(1+4%))	(249600*(1+4%))		(259584*(1+4%))
Schedule of Production Budget
	July	August	September	Total
Sales=(A)	240000	249600	259584	749184
Add: Ending Inventory=(B)	212160	220646	229472	229472
Total needs=(C )=(A)+(B)	452160	470246	489056	978656
Less:Beginning Inventory=(D)	204000	212160	220646	204000
Required Production=(C )-(D)	248160	258086	268410	774656
Ending Inventory	(249600*85%)	(259584*85%)	(269967.36*85%)
Beginning Inventory	204000	(249600*85%)	(259584*85%)
Company's total production in units	774656
Total Production at the end of three months=(A)	620000
Raw Material Required per unit=(B)	5
Total Material Required for Production=(C )=(A)*(B)	3100000
Ending Finished Goods Inventory=(C )*25%=(D)	775000
Total Raw Material required=(E )=(C )+(D)	3875000
Less: Beginning Inventory=(F )	830000
Direct Raw Material purchase=(G )=(E )-(F)	3045000
Cost per pound=(H)	$                       1.95
Raw Material purchase Price=(G)*(H)	$         59,37,750.00
Total estimated cost of raw material purchases for the entire three month period ended september 30th.	$         59,37,750.00