Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows U
ID: 2524315 • Letter: R
Question
Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows Units Month April May June 2,560 2,450 2,390 The target ending inventory of finished products is as follows March 31 April 30 May 31 June 30 2,000 2,240 2,140 2,370 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. Rensing's policy is to have an inventory of raw materials at the end of each month equal to 40% of the following month's production requirements Raw materials are expected to cost $6 per unit throughout the period Calculate the May raw materials purchases in dollars Raw material purchases cost 85140Explanation / Answer
Raw material purchase is based on production requirement for current and next month. So first we will calculate the estimated production of each month:
Estimated Production = Estimated Ending Inventory + Estimated Sales – Estimated Opening Inventory
Estimated production for
April = 2240+2560-2000 = 2800 units
May = 2140+2450-2240 = 2350 units
June = 2370+2390-2140 = 2620 units
R aw material required for may’s production = 2350*2 = 4,700 units
40% of raw material required for may’s production would have been purchased in previous month and 60% will be purchased in may.
So raw material to be purchased in may for may’s production = 4700*60% = 2820 units.
Raw materials required for June’s production = 2620*2 = 5,240 units
Raw materials to be purchased in may for june’s production = 5240*40% = 2096 units.
Total Raw materials to be purchased in May = 2820 + 2096 = 4916 units
Raw material cost per unit = $6
May raw material purchases in $ = 4916*6 = $29,496