San Fernando Fertilizer Company plans to sell 250,000 units of finished product

Question

San Fernando Fertilizer Company plans to sell 250,000 units of finished product in July and anticipates a growth rate in sales of 3 percent per month. The desired monthly ending inventory in units of finished product is 75 percent of the next month's estimated sales. There are 187,500 finished units in inventory on June 30. Each unit of finished product requires 5 pounds of raw material at a cost of $2.05 per pound. There are 850,000 pounds of raw material in inventory on June 30.

Compute the company's total required production in units of finished product for the entire three-month period ending September 30. (Do not round intermediate calculations. Round your final answer to the nearest unit.)

2. 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.

San Fernando Fertilizer Company plans to sell 250,000 units of finished product in July and anticipates a growth rate in sales of 3 percent per month. The desired monthly ending inventory in units of finished product is 75 percent of the next month's estimated sales. There are 187,500 finished units in inventory on June 30. Each unit of finished product requires 5 pounds of raw material at a cost of $2.05 per pound. There are 850,000 pounds of raw material in inventory on June 30.

Explanation / Answer

Grows at 3% July Aug Sep Oct Units to be Sold 250000 257500 265225 273182 Opening FG Inventory 187500 (103% of Pr Month) 1 Production Budget for the Period: Particulars July Aug Sep Units to be Sold 250000 257500 265225 Add: Desired Closing Inventory 193125 198919 204887 (75% of next month Sales) Total Need 443125 456419 470112 Lees: Opening Inventory 187500 193125 198919 Net Production to be done 255625 263294 271193 2 Production Plan in Units 640000 Raw Material Requirement PU 5 Total RM Usage 3200000 Usage Add: Desired Closing Inventory 800000 (25% of Usage) Total Need 4000000 Lees: Opening Inventory 850000 Material to be Purchased in Units 3150000 Cost of RM PU 2.05 Material to be Purchased in Value 6457500

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