Question
In: Accounting
San Fernando Fertilizer Company plans to sell 260,000 units of finished product in July and anticipates...
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San Fernando Fertilizer Company plans to sell 260,000 units of finished product in July and anticipates a growth rate in sales of 4 percent per month. The desired monthly ending inventory in units of finished product is 85 percent of the next month's estimated sales. There are 221,000 finished units in inventory on June 30. Each unit of finished product requires 3 pounds of raw material at a cost of $1.95 per pound. There are 840,000 pounds of raw material in inventory on June 30.
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Expert Solution
| budgeted sales (in units) | planned ending inventory (in units) | |
| june | - | |
| july | 260000 ( given ) | 221000 ( 260000 * 85% ) |
| august | 270400 ( 260000 * 1.04 ) | |
| september | 281216 ( 270400 * 1.04 ) | 248595 ( 292465 * 85% ) |
| october | 292465 ( 281216 * 1.04 ) |
| july | 260000 |
| august | 270400 |
| september | 281216 |
| total for third quarter | 811616 |
| ADD : desired ending inventory, september 30 | 248595 |
| subtotal | 1060211 |
| LESS : desired ending inventory, june 30 | 221000 |
| total required production | 839211 |
| assumed production during third quarter (in units) | 740000 |
| raw material requirements per unit of product (in pounds) | * 3 |
| raw material required for production in third quarter (in pounds ) (740000*3) | 2220000 |
| ADD: desired ending raw material inventorry , september 30 (2220000*25%) | 555000 |
| subtotal | 2775000 |
| LESS : ending raw material inventory, june 30 | 840000 |
| raw material to be purchased during third quarter (in pounds) | 1935000 |
| cost per pound of raw material | * 1.95 |
| total raw material purchases during third quarter (1935000*1.95) | $3773250 |
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