Question

Rensing Ltd. estimates sales for the second quarter of 2020 will be as follows. Month Units April 2,530 May 2,490 June 2,360 The target ending inventory of finished products is as follows. March 31 2,020 April 30 2,300 May 31 2,200 June 30 2,310 2 units of material are required for each unit of finished product. Production for July is estimated at 2,650 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 $7 per unit throughout the period. Calculate the May raw materials purchases in dollars.

Answer 1

$33,908

Step-by-step explanation:

Rensing Ltd.

Materials budget

For the month of May, 31

Sales 2,490 units

Add: Ending production 2,200 units

Total required 4,690 units

Less: Beginning production (2,300) units

Budgeted production 2,390 units

Raw materials per unit × 2

Budget Raw materials 4,780 units

Given,

Raw materials at the end of each month equal to 40% of the following month’s production requirements. It means 40% will come from June and 60% will come from current month.

Therefore, Budgeted raw materials for June = (2,360 + 2,310 - 2,200) units × 2 (per unit) = 2,470 units × 2 (per unit) = 4,940 units.

Purchase of raw material = 60% of May + 40% of June = (4,780 units × 60%) + (4,940 units × 40%)

Purchase of raw material = 2,868 units + 1,976 units = 4,844 units

Cost per raw material unit = $7

Therefore, Total raw materials purchases in dollars in May = 4,844 × $7 = $33,908.