Question

Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows. Month Units April 2,590 May 2,440 June 2,400 The target ending inventory of finished products is as follows. March 31 2,000 April 30 2,290 May 31 2,150 June 30 2,310 2 units of material are required for each unit of finished product. Production for July is estimated at 2,660 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 $4 per unit throughout the period. Calculate the May raw materials purchases in dollars.

Answer 1

First let us know the may finished goods requirement:

sale units	2,440
add:ending finished units	2,150
less:opening finished units (April's ending units will be opening for may)	(2,290)
finished goods to be produced in may	2,300

let us also know june finished goods production:

sale units	2,400
add:ending inventory	2,310
less:opening inventory (may's ending inventory)	(2,150)
units to be produced in june	2,560

now,

may's raw material requirements.

raw material for may production (2,300 units*2)	4,600
add; closing inventory (june requirement *40%) (2,560*2units*40%)	2,048
less:opening raw material (40% of may requirement =>4600*40%)	(1,840)
raw material requirements in units	4,808
raw material requirements in dollars (4,808 units *$4 per unit)	$19,232