Problem
San Fernando Fertilizer Company plans to sell 270,000 units of finished product in July and anticipates a growth rate in sales of 4 percent per month. The desired monthly ending inventory in units of finished product is 80 percent of the next month's estimated sales. There are 216,000 finished units in inventory on June 30. Each unit of finished product requires 5 pounds of raw material at a cost of $1.85 per pound. There are 760,000 pounds of raw material in inventory on June 30.
Required:
1. Compute the company's total required production in units of finished product for the entire three-month period ending September 30.
2. Independent of your answer to requirement (1), assume the company plans to produce 760,000 units of finished product in the three-month period ending September 30, and to have raw-material inventory on hand at the end of the three-month period equal to 25 percent of the use in that period. Compute the total estimated cost of raw-material purchases for the entire three-month period ending September 30.