Question

Exercise 23-7 Rensing Ltd. estimates sales for the second quarter of 2017 will be as follows. Month Units April 2,600 May 2,470 June 2,320 The target ending inventory of finished products is as follows. March 31 2,030 April 30 2,200 May 31 2,130 June 30 2,380 2 units of material are required for each unit of finished product. Production for July is estimated at 2,600 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 70% 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

Answer:

Raw materials purchases cost for May 10,160

Explanation:

May production

sales            2,470

ending          2,130

beginning   (2,200) (ending of April)

units to be produced 2,400

Raw material budget

production needs                      2,400

desired ending inventory

       2,600 x 70% =                     1,820

beginning inventory

      may production x 70%

      2,4000 x 70%  =                 (1,680)

total raw materials purchase     2,540

It will puchase raw materials for 2,540 units. Each units require $4 of raw materials.

total cost for raw materials:

2,540 x $4 =  10,160