BACK Rensing Ltd. estimates sales for the second quarter of 2017 will be as foll

Question

BACK Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows Month April May une Units 2,360 2,440 2,370 The target ending inventory of finished products is as follows March 31 2,050 April 302,210 May 312,170 June 30 2,320 ns re nttined rosoction tor buy s estinoted 90 at 2,800 units to start building Inventory for the fall sales period. Rensing's policy is to have an inventory of raw materials at the Raw materials are expected to cost $7 per unit throughout the period. Calculate the May raw materials purchases in dollars Raw material purchases cost end of each month equal to 50% of the following month's production requirements.

Explanation / Answer

first let us calculate monthly production of april may june.

production = sale + closing stock - opening stock.

now,

raw material requirements for production each month = production units * raw material requirement per unit

now,

may raw material purchase = may production requirement + may closing stock of raw material - may opening stock of raw material

may production requirement = 4,800 units.

may closing stock = 50% of june production requirement => 50%* 5,040 units =>2,520 units

may opening stock = april closing stock = 50% of may production requirement=>50% *4,800 units =>2,400 units.

now,

may raw material purchases = 4800 + 2520 - 2400 =>4,920 units.

may raw material purchases in dollars = 4,920 units * $7 =>$34,440.

month production april 2,560 + 2,210-2,050=>2,720 may 2,440+2,170 - 2,210 =>2,400 june 2,370 + 2,320- 2,170 =>2,520

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