Exercise 9-7 Rensing Ltd. estimates sales for the second quarter of 2017 will be

Question

Exercise 9-7

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

Month

Units

The target ending inventory of finished products is as follows.

2 units of material are required for each unit of finished product. Production for July is estimated at 2,700 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 $4 per unit throughout the period.

Calculate the May raw materials purchases in dollars.

$

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Explanation / Answer

Raw material requirement /purchases (in units)for may = Ending raw material + material used in units produced - Raw material available at beginning

                = (5000 *.50 ) + 5290 - (5290 *.50)

               = 2500 + 5290 - 2645

               =5145 units

Purchase cost = 5145 * 4 =$ 20580

**Units production schedule

ending inventory of raw material = 50% of production requirement of next month

                                                            = .50 *5000 = 2500

may june sales 2675 2390 Ending inventory of finished goods 2200 2310 less:beginning inventory (ending of last month) (2230) (2200) Units produced 2645 2500 consumption per unit of raw material 2 2 Raw material consumed in production 5290 5000

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