Question

Greener Grass Fertilizer Company plans to sell 270,000 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 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 $1.75 per pound. There are 770,000 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 720,000 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

Requirement 1
Budgeted production (Units)
	July	August	September	Total
Required ending Finished goods inventory (units)	2,22,480	2,29,154	2,36,029
	(278,100X80%)	(286,443X80%)	(286,443X103%X80%)
Add: Sales (units)	2,70,000	2,78,100	2,86,443
	4,92,480	5,07,254	5,22,472
Less: Beginning Finished goods inventory (units)	2,16,000	2,22,480	2,29,154
		(278,100X80%)	(286,443X80%)
Budgeted production (Units)	2,76,480	2,84,774	2,93,318	8,54,572

Requirement 2
Estimated cost of raw materials purchases
Budgeted production (Units)	7,20,000
Required material for production (pounds)	28,80,000
	(720,000X4)
Add:Required Ending raw material inventory (pounds)	7,20,000
	(2,880,000X25%)
	36,00,000
Less: Beginning raw material inventory (Pounds)	7,70,000
Budgeted raw materials to be purchased (pounds)	28,30,000
Estimated cost of raw materials purchases ($)	49,52,500
	(2,830,000X1.75)