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 85 percent of the next month's estimated sales. There are 229,500 finished units in inventory on June 30. Each unit of finished product requires 3 pounds of raw material at a cost of $1.35 per pound. There are 810,000 pounds of raw material in inventory on June 30. Required: 1. 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.) 2. Independent of your answer to requirement (1), assume the company plans to produce 740,000 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. Total required production in units 2. Total estimated cost

Answer 1

1)	July	August	September	Total
Budgeted sales in units (270,000*105/100); (283,500*105/100)	270,000	283,500	297,675	851,175
Add: Desired ending finished goods inventory (283,500*85/100); ($297,675*85/100); (297,675*105/100 = 312,559*85/100)	240,975	253,024	265,675	759,674
Less: Beginning finished goods inventory (last month's ending inventory will be the beginning inventory of current month)	229,500	240,975	253,024	723,499
Required production in units	281,475	295,549	310,326	887,350
Therefore, total required production in units for the entire three-month period ending September is 887,350 units.

2)
Required production in units (a)	740,000
Each unit of finished goods inventory required in pounds (b)	3
Total pounds of raw materials required (a*b)	2,220,000
Add: Ending inventory of raw materials (2,220,000*25/100)	555,000
Less: Beginning inventory of raw materials	810,000
Raw materials required in pounds to purchase (d)	1,965,000
Cost per pound of raw materials (e )	$1.35
Total estimated cost (d*e)	$2,652,750