Charter Ltd. estimates sales for the second quarter of 2014 will be as follows.
ID: 2450252 • Letter: C
Question
Charter Ltd. estimates sales for the second quarter of 2014 will be as follows. The target ending inventory of finished products is as follows. 2 units of material are required for each unit of finished product. Production for July is estimated at 2,710 units to start building inventory for the fall sales period. Chandler's policy is to have an inventory of raw materials at the end of each month equal to 60% of the following month's production requirements. Raw materials are expected to cost $7 per unit throughout the period. Calculate the May raw materials purchases in dollars.Explanation / Answer
Answer
The May Raw Material Purchase cost = $ 34,188
Working
Production Budget April May June Budgeted sales in units 2,520 2,420 2,350 Add : Budgeted ending inventory 2,210 2,160 2,300 Total needs 4,730 4,580 4,650 Deduct:Beginning inventory 2,050 2,210 2,160 No of Unit to be produced 2,680 2,370 2,490 Raw Materials Budget April May June Budgeted production units 2,680 2,370 2,490 Raw Material Required per unit 2.00 2.00 2.00 Estimated Usage of Raw Material 5,360 4,740 4,980 Add : Budgeted ending inventory ( Estimated Usage of Raw Material next Month * 60%) 2,844 2,988 Total needs 8,204 7,728 Deduct:Beginning inventory 3,216 2,844 Required unit purchases 4,988 4,884 Unit cost 7.00 7.00 Required dollar purchases 34,916 34,188