Question

San Fernando Fertilizer Company plans to sell 250,000 units of finished product in July and anticipates a growth rate in sales of 3 percent per month. The desired monthly ending inventory in units of finished product is 75 percent of the next month's estimated sales. There are 187,500 finished units in inventory on June 30. Each unit of finished product requires 5 pounds of raw material at a cost of $2.05 per pound. There are 850,000 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. (Do not round intermediate calculations. Round your final answer to the nearest unit.) 2. Independent of your answer to requirement (1), assume the company plans to produce 640,000 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

			Grows at 3%
		July	Aug	Sep	Oct
	Units to be Sold	250000	257500	265225	273182
	Opening FG Inventory	187500	(103% of Pr Month)
1	Production Budget for the Period:
	Particulars	July	Aug	Sep
	Units to be Sold	250000	257500	265225
	Add: Desired Closing Inventory	193125	198919	204887	(75% of next month Sales)
	Total Need	443125	456419	470112
	Lees: Opening Inventory	187500	193125	198919
	Net Production to be done	255625	263294	271193
2	Production Plan in Units	640000
	Raw Material Requirement PU	5
	Total RM Usage	3200000	Usage
	Add: Desired Closing Inventory	800000	(25% of Usage)
	Total Need	4000000
	Lees: Opening Inventory	850000
	Material to be Purchased in Units	3150000
	Cost of RM PU	2.05
	Material to be Purchased in Value	6457500