Please explain I'm so lost
Chandler Ltd. estimates sales for the second quarter of 2014 will be as follows.
Month
Units
April 2,550
May 2,475
June 2,390
The target ending inventory of finished products is as follows.
March 31 2,000
April 30 2,230
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 2,700 units to start building inventory for the fall sales period. Chandler’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 $4 per unit throughout the period.
Calculate the May raw materials purchases in dollars.
Pls guide me I have no clue to figure this question. Thanks and regards
Please help
To calculate the May raw materials purchases in dollars, we need to determine the raw materials required for production in May and multiply it by the cost per unit.
First, let's calculate the raw materials required for production in May. We know that 2 units of material are required for each unit of finished product, and the estimated sales for May are 2,475 units.
So, the raw materials required for production in May would be:
Raw materials required = Number of finished products in May * 2
Raw materials required = 2,475 units * 2
Next, we need to determine the raw materials inventory at the end of April, which will be used for production in May. The policy states that the raw materials inventory at the end of each month should be equal to 50% of the following month's production requirements.
Raw materials inventory at the end of April = 50% * Raw materials required for production in May
Finally, we can calculate the raw materials purchases for May by considering the change in raw materials inventory from April to May:
Raw materials purchases for May = Raw materials required for production in May + Raw materials inventory at the end of April - Raw materials inventory at the end of May
Given that the raw materials are expected to cost $4 per unit throughout the period, we can multiply the raw materials purchases for May by the cost per unit to obtain the answer in dollars.