Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows.
ID: 2508265 • Letter: R
Question
Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows.
Month
Units
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 2,800 units to start building inventory for the fall sales period. Rensing’s policy is to have an inventory of raw materials at the end of each month equal to 50% 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.
Month
Units
April 2,560 May 2,420 June 2,340Explanation / Answer
May June Estimated sales 2,420 2,340 Add: Ending finished goods inventory 2,200 2,300 Less: Beginning finished goods inventory (2,200) (2,200) Required production 2,420 2,440 Raw material required per unit 2 units 2 units Total raw material required for production 2,420*2 = 4,840 2,440*2 = 4,880 Add: Ending raw material inventory (4,880*50%) 2,440 Less: Beginning raw material inventory (4,840*50%) (2,420) Raw material to be purchased 4,860 Raw material cost per unit $7 Total raw material purchases in dollars ($7*4,860) $34,020