Wolfpack Inc. manufactures a collegiate product sold in the university bookstore

Question

Wolfpack Inc. manufactures a collegiate product sold in the university bookstore which requires glue as one of the key ingredients. The company has already done their production budget and has determined that the following units of this collegiate product need to be produced in the first quarter of 2014:

January: 3,000 units

February: 1,800 units

March: 2,500 units

Each of the above units requires 1 ounce of glue at a cost of $1.50 per ounce. The company has determined that it needs 10% of next month's raw material needs on hand at the end of each month.

Question: What will be the cost of the glue that is expected to be purchased in February?

Explanation / Answer

For the month of February, we require 1800*1 = 1800 ounces of glue for production.

For the month of March, we require 2500*1 = 2500 ounces of glue for production.

Of the February requirements, we already have 10%, i.e. 1800*10% = 180 ounces. We need to purchase the remaing amount of glue = 1800 - 180 = 1620 ounces.
As per the requirements, we need to purchase 10% of the expected requirements of March, i.e. 2500*10% = 250 ounces.

Thus, total purchases = 1620 + 250 = 1870 ounces.

Hence, the cost of glue purchased = 1870*1.5 = $2,805

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