Question

Greener Grass Fertilizer Company plans to sell 260,000 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 208,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of raw material at a cost of $2.05 per pound. There are 720,000 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. (Round all intermediate calculations and your final answer to the nearest unit.)

Independent of your answer to requirement (1), assume the company plans to produce 800,000 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.

Greener Grass Fertilizer Company plans to sell 260,000 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 208,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of raw material at a cost of $2.05 per pound. There are 720,000 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. (Round all intermediate calculations and your final answer to the nearest unit.)

Independent of your answer to requirement (1), assume the company plans to produce 800,000 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

• All working forms part of the answer
• Requirement 1: Total Required production in Units

Note: October budgeted sales would have been 286650 + 5% = $300,982.5

	July	Aug	September	Total for Quarter
Budgeted Sales Units	260000	273000	286650	819650
Add: Desired ending inventory [80% of next month's sale]	218400	229320	240786 [300982.5 x 80%]	240786
Total required	478400	502320	527436	1060436
Less: Beginning Inventory	208000	218400	229320	208000
Required to be produced Units [ANSWER]	270400	283920	298116	852436

• Requirement 2: Estimated cost of Raw material if 800000 units are to be produced.

	Quarter
Budgeted production [units]	800000
Pounds of raw material per unit [pounds]	4
Total raw material requirement [pounds]	3200000
Add: Desired ending inventory of raw material [pounds]	800000
Total requirement for the quarter [pounds]	4000000
Less: Beginning Inventory on Jul 1 [pounds]	720000
Raw material to be purchased [pounds]	3280000
Cost of raw material per pound	$2.05
Raw material purchase cost	$6,724,000