Question

Exercise 9-25 Budgeting Production and Raw-Material Purchases (LO 9-3, 9-6) Greener Grass Fertilizer Company plans to sell 210,000 units of finished product in July and anticipates a growth rate in sales of 4 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 168,000 finished units in inventory on June 30. Each unit of finished product requires 6 pounds of raw material at a cost of $1.45 per pound. There are 810,000 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 640,000 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.

Answer 1

Assumed production during third quarter (in units).	640000
Raw-material requirements per unit of product (in pounds)	X 6
Raw material required for production in third quarter (in pounds)	3840000
Add: Desired ending raw-material inventory, September 30 (3840000*25%)	960000
Subtotal	4800000
Deduct: Ending raw-material inventory, June 30	810000
Raw material to be purchased during third quarter (in pounds)	3990000
Cost per pound of raw material	1.45
Total raw-material purchases during third quarter	5785500