Question

Grouper Ltd. estimates sales for the second quarter of 2017 will be as follows.

Month Units
April 2,580
May 2,400
June 2,330

The target ending inventory of finished products is as follows.

March 31 2,020
April 30 2,200
May 31 2,130
June 30 2,330

Two 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. Grouper’s policy is to have an inventory of raw materials at the end of each month equal to 50% of the following month’s production requirements. Raw materials are expected to cost $6 per unit throughout the period.

Required:
Calculate the May raw materials purchases in dollars.

Answer 1

Answer:

July production = 2,660 units

raw materials per unit = $6

ending inventory of raw materials = 50% of next month production

         RAW MATERIALS PURCHASES

                                               April                  May                June

units to be produced           2,200                 2,130              2,330

+ ending inventory                1,065                 1,165               1,330

EU raw materials

- beginning inventory           -1,100               -1,065              -1,165

EU raw materials                                                                              

total direct materials

purchases (in units)               2,165                2,230             2,495

cost of direct materials             $6                      $6                  $6

per unit                                                                                              

total purchases                 $12,990           $13,380          $14,970