Greener Grass Fertilizer Company plans to sell 270,000 units of finished product
ID: 2518054 • Letter: G
Question
Greener Grass Fertilizer Company plans to sell 270,000 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 90 percent of the next month’s estimated sales. There are 243,000 finished units in inventory on June 30. Each unit of finished product requires 6 pounds of raw material at a cost of $1.35 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 700,000 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.
Explanation / Answer
Answer
July
August
September
Total Quarter [3 months]
Budgeted Sales units
270000
283500 [270000 + 5%]
297675 [283500 + 5%]
851,175
Add: Desired ending Inventory [90% of next month’s sale]
255150
267907.5
281302.875
281,303
Total requirement
525150
551407.5
578977.875
1,132,478
Less: Beginning Inventory
243000
255150
267907.5
243,000
Total required production in units of Finished Goods
282150
296257.5
311070.375
889,478
Units to produce
700000
Raw material required [at 6 pounds per units]
4200000 pounds
Add: Desired ending raw material inventory [25%]
1050000 pounds
Total requirement
5250000 pounds
Less: Beginning raw material inventory in pounds
720000 pounds
Raw material to be purchased
4,530,000 pounds
Total estimated cost of raw material purchases at $1.35 per pound
$6,115,500
July
August
September
Total Quarter [3 months]
Budgeted Sales units
270000
283500 [270000 + 5%]
297675 [283500 + 5%]
851,175
Add: Desired ending Inventory [90% of next month’s sale]
255150
267907.5
281302.875
281,303
Total requirement
525150
551407.5
578977.875
1,132,478
Less: Beginning Inventory
243000
255150
267907.5
243,000
Total required production in units of Finished Goods
282150
296257.5
311070.375
889,478
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