Osage, Inc., has actual sales for May and June and forecast sales for July, Augu

Question

Osage, Inc., has actual sales for May and June and forecast sales for July, August, September, and October as follows Actua May June 5,870 units 6,100 units Forecast August September October 6,070 units 6,710 units 5,680 units 5,370 units Required: a. The firm's policy is to have finished goods inventory on hand at the end of the month that is equal to 75% of the next month's sales. It is currently estimated that there will be 4,552 units on hand at the end of June. Calculate the number of units to be produced in each of the months of July, August, and September July August September Productiorn b. Each unit of finished product requires 6 pounds of raw materials. The firm's policy is to have raw material inventory on hand at the end of each month that is equal to 50% of the next month's estimated usage. It is currently estimated that 26,000 pounds of raw materials will be on hand at the end of June. Calculate the number of pounds of raw materials to be purchased in each of the months of July and August. July August Purchases

Explanation / Answer

PART A july august september october sales forecast 6070 6710 5680 5370 beginning inventory 4552 5033 4260 production 6551 5938 5448 goods available 11103 10970 9708 ending inventory -5033 -4260 -4028 units sold 6070 6710 5680 Steps: (1) Units sold based on sales forecast. (2) Ending inventory = 75% of the next month's forecast. (3) Goods available for sale = units sold (based on sales forecast) + ending inventory. (4) Beginning inventory = ending inventory from the prior month = 75% of the current month's sales forecast. July is given. (5) Production = Goods available - Beginning inventory. PART B july august september production forecast 6551 5938 5448 raw materials used 39303 35625 32685 beginning inventoruy 26000 17813 purchase pounds 31116 34155 raw materials available for use 57116 51968 ending inventory -17813 -16343 raw materials used 39303 35625 Steps: (1) Raw materials used in production = production forecast x 6 pounds per unit produced. (2) Ending inventory = 50% of the next month's estimated raw materials usage. (3) Raw materials available for use = raw materials used (based on production forecast) + ending inventory. (4) Beginning inventory = ending inventory from the prior month = 50% of the current month's raw material usage (pounds). july is given. (5) Purchases (pounds) = raw materials available for use - beginning inventory

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