Question

Exercise 9-25 Budgeting Production and Raw-Material Purchases (LO 9-3, 9-6) Greener Grass Fertilizer Company plans to sell 230,000 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 80 percent of the next month’s estimated sales. There are 184,000 finished units in inventory on June 30. Each unit of finished product requires 6 pounds of raw material at a cost of $1.15 per pound. There are 810,000 pounds of raw material in inventory on June 30. Required: 1. Compute the company’s total required production in units of finished product for the entire three-month period ending September 30. (Round all intermediate calculations and your final answer to the nearest unit.) 2. Independent of your answer to requirement 1, assume the company plans to produce 800,000 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.

Answer 1

1.

Greener Grass Fertilizer company
Production Budget
	July	August	September	Total
Sales	230000	236900	244007	710907
Add: Desired ending inventory	189520	195206	201062	201062
Total requirements	419520	432106	445069	911969
Less: Projected beginning inventory	184000	189520	195206	184000
Total required prodcution in Units	235520	242586	249863	727969

2.

	Quarter
Planned production	800000
Raw material required (Pounds per unit)	6
Raw material required for production	4800000
Add: Desired ending inventory of raw material (4800000*25%)	1200000
Total requirements	6000000
Less: Beginning inventory of raw material	810000
Planned purchases of raw material	5190000
Cost per pound	$1.15
Total estimated cost	$59,68,500