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.

Raw material purchases cost = $________

Answer 1

Calculations	Particulars	April	May	June	July
A	Sales units	2590	2440	2400
B	Closing Inventory of finished goods	2290	2150	2310
C = B of previous month	Opening inventory of finished goods	2000	2290	2150
D = A + B - C	Production of finished goods	2880	2300	2560	2660
E	Material required per unit	2	2	2	2
F = D x E	Total material consumption for production	5760	4600	5120	5320
G = F of next month x 40%	Closing inventory of raw materials	1840	2048	2128
H = G of previous month	Opening inventory of raw materials		1840	2048
I = F + G - H	Purchases of raw material required		4808	5200
J	Price per unit of raw materials		4	4
K = I x J	Raw materials purchase cost in dollars		19232	20800

So, May month purchases of raw materials in dollars is $19,232