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The company’s raw material supplier has informed them that due to restrictions on the manufacture of the material, the supply to the company will be restricted to 6,600,000 kg per quarter for the foreseeable future beginning from Quarter 1. Kinn Co decides to purchase the maximum amount of material available in each quarter and build up inventory of finished goods whenever possible.
Calculate a revised closing finished goods inventory for Quarter 3 (to the nearest unit), taking into account the restrictions on the raw material supply.(units)answer: 0 units
As 6,600,000kg of material is available then the company can only produce 2,200,000 units as each unit requires 3kg.Even taking into account the opening inventory of 325,000 units, the company will only be able to sell 2,525,000 units of its forecast Quarter 3 sales. This means that closing inventory will be 0.
can you explain the answer please
I cannot explain because you have not typed the whole question. For example, you have not said what the forecast sales are.
If this is a question in the BPP Revision Kit, then say which question. Then I will be able to see the whole question and explain the answer to you.
its multi task question
Kinn Co produces a single product. Each finished product requires 3 kg of raw materials. The raw material costs $6 per kg
You are given the following information.1.Kinn Co prepares budgets on a quarterly basis. Each quarter consists of 13 weeks, with five working days per week
2.it is the company’s policy to maintain an inventory of finished goods at the end of each quarter equal to five days demand for the next quarter whenever possible
3.It is not possible to hold raw material inventory because of its perishable nature, but it is possible to hold inventory of finished goods at any level
4.Forecast sales units for the next four quarters are:
quarter 1
1,950,000
Quarter 2
2,275,000
Quarter 3
3,250,000
Quarter 4
2,275,000
5)Selling price is $56 per unit
6)Kinn Co aims to maximise its profits.
task 4 and 5:
The company’s raw material supplier has informed them that due to restrictions on the manufacture of the material, the supply to the company will be restricted to 6,600,000 kg per quarter for the foreseeable future beginning from Quarter 1. Kinn Co decides to purchase the maximum amount of material available in each quarter and build up inventory of finished goods whenever possible.
Calculate a revised closing finished goods inventory for Quarter 3 (to the nearest unit), taking into account the restrictions on the raw material supply.(units)answer: 0 units
As 6,600,000kg of material is available then the company can only produce 2,200,000 units as each unit requires 3kg.Even taking into account the opening inventory of 325,000 units, the company will only be able to sell 2,525,000 units of its forecast Quarter 3 sales. This means that closing inventory will be 0.
may be related
task 3Kinn Co budgets to produce 3,175,000 units in Quarter 3 to meet sales demand and to achieve a closing finished goods inventory of 175,000 units.
What is the budgeted cost for raw material usage in Quarter 3 (to the nearest thousand dollars)?
answer
Raw material usage budget = production budget x material usage per unitx standard cost per kg= 3,175,000 x 3kg x $6 = $57,150,000
Tha answer now makes sense 🙂
I think there is one small mistake in the answer, but the final conclusion is correct.
They can not hold inventories of raw materials and so the maximum material available is quarter 3 is enough to produce 6,600,000/ 3 = 2,200,000 units.
The inventory of finished goods at the end of quarter 2 / start of quarter 3, is 3,250,000/13 = 250,000 (not 325,000).
That means that the most units they can possibly sell in quarter 3 is 2,200,000 + 250,000 = 2,450,000 units. The demand is 3,250,000 units, so what will happen is that they will sell all of the units available (2,450,000 units) and there will be no inventory left at the end of the quarter.
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