Question

Adelaide Pty Ltd plan to sell 400,000 units of finished production July of 2020. Management anticipates a growth rate in sales of five recent per month. The desired ending inventory in units of finished product is 80 percent of the next month’s estimated sales. There are 300,000 finished units on 30 June 2020.

Each unit of finished product requires four kilos of direct material at a cost of $1.50 per kilo. There are 1,600,000 kilos of direct material in inventory on 30 June 2020.

Required:

1. Compute Adelaide Pty Ltd.’s production requirements in units of finished product for the three-month period ending 30 September 2020.

2. Independent of your answer to A above, assume the company plans to produce 1,200,000 units of finished product in the three-month period ended 30 September 2020. The company will have direct materials inventory at the end of the three-month period equal to 25 percent of the direct material used during that period. Compute the estimated cost of direct materials purchases for the three-month period ending 30 September 2020.