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Greener Grass Fertilizer Company plans to sell 260,000 units of finished product

ID: 2513656 • Letter: G

Question

Greener Grass Fertilizer Company plans to sell 260,000 units of finished product in July and anticipates a growth rate in sales of 5 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 208,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of raw material at a cost of $2.05 per pound. There are 720,000 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 800,000 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.

Greener Grass Fertilizer Company plans to sell 260,000 units of finished product in July and anticipates a growth rate in sales of 5 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 208,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of raw material at a cost of $2.05 per pound. There are 720,000 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 800,000 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.

1. Total required production in units 2. Total estimated cost

Explanation / Answer

Answer

Note: October budgeted sales would have been 286650 + 5% = $300,982.5

July

Aug

September

Total for Quarter

Budgeted Sales Units

260000

273000

286650

819650

Add: Desired ending inventory [80% of next month's sale]

218400

229320

240786 [300982.5 x 80%]

240786

Total required

478400

502320

527436

1060436

Less: Beginning Inventory

208000

218400

229320

208000

Required to be produced Units [ANSWER]

270400

283920

298116

852436

Quarter

Budgeted production [units]

800000

Pounds of raw material per unit [pounds]

4

Total raw material requirement [pounds]

3200000

Add: Desired ending inventory of raw material [pounds]

800000

Total requirement for the quarter [pounds]

4000000

Less: Beginning Inventory on Jul 1 [pounds]

720000

Raw material to be purchased [pounds]

3280000

Cost of raw material per pound

$2.05

Raw material purchase cost

$6,724,000

July

Aug

September

Total for Quarter

Budgeted Sales Units

260000

273000

286650

819650

Add: Desired ending inventory [80% of next month's sale]

218400

229320

240786 [300982.5 x 80%]

240786

Total required

478400

502320

527436

1060436

Less: Beginning Inventory

208000

218400

229320

208000

Required to be produced Units [ANSWER]

270400

283920

298116

852436