Question

Greener Grass Fertilizer Company plans to sell 270,000 units of finished product in July and anticipates a growth rate in sales of 5 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 216,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of raw material at a cost of $1.35 per pound. There are 800,000 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. (Round all intermediate calculations and your final answer to the nearest unit.)

2. Independent of your answer to requirement (1), assume the company plans to produce 760,000 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.

	1. Total required production in units 2. Total estimated cost

Answer 1

	July	Aug	Sep	Total
Budgeted Sales	270,000	283,500	297,675	851,175
Add: Desired Ending Inventory	226,800	238,140	250,047	250,047
Total Required	496,800	521,640	547,722	1,101,222
Less: Beginning Inventory	216,000	226,800	238,140	216,000
Required Production	280,800	294,840	309,582	885,222
Budgeted Production	760,000
Raw material per unit	4
Raw material required for production	3,040,000
Add: Desired Ending Inventory	760,000
Total Required	3,800,000
Less: Beginning Inventory	800,000
Required Purchases	3,000,000
Cost per unit	1.35
Total Estimated cost	4,050,000