Question

Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows.

Month		Units
April		2,560
May		2,420
June		2,340

The target ending inventory of finished products is as follows.

March 31		2,040
April 30		2,200
May 31		2,200
June 30		2,300

2 units of material are required for each unit of finished product. Production for July is estimated at 2,800 units to start building inventory for the fall sales period. Rensing’s policy is to have an inventory of raw materials at the end of each month equal to 50% of the following month’s production requirements.

Raw materials are expected to cost $7 per unit throughout the period.

Calculate the May raw materials purchases in dollars.

Raw material purchases 33,320 is WRONG

Answer 1

	May	June
Estimated sales	2,420	2,340
Add: Ending finished goods inventory	2,200	2,300
Less: Beginning finished goods inventory	(2,200)	(2,200)
Required production	2,420	2,440
Raw material required per unit	2 units	2 units
Total raw material required for production	2,420*2 = 4,840	2,440*2 = 4,880
Add: Ending raw material inventory (4,880*50%)	2,440
Less: Beginning raw material inventory (4,840*50%)	(2,420)
Raw material to be purchased	4,860
Raw material cost per unit	$7
Total raw material purchases in dollars ($7*4,860)	$34,020