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Estimating Production Costs

The Fancy Umbrella Company makes beach umbrellas. The production process requires 3 square meters of plastic sheeting and a metal pole. The plastic sheeting costs $0.50 per square meter and each metal pole costs $1.00. At the beginning of the month, the company has 5,000 square feet of plastic and 1,000 poles in raw materials inventory. The preferred raw material amount at the end of the month is 3,000 square feet of plastic sheeting and 600 poles. The company has 300 finished umbrellas in inventory at the beginning of the month and plans to have 200 finished umbrellas at the end of the month. Sales in the coming month are expected to be 5,000 umbrellas.

a. How many umbrellas must the company produce to meet demand and have sufficient ending inventory?

b. What is the cost of materials that must be purchased?

Solution Preview

a) How many umbrellas must the company produce to meet demand and have sufficient ending inventory?
5,000+ 200 - 300 = 4,900 umbrellas must be produced

b) What is the cost of materials that must be purchased?
Number of square ...

Solution Summary

To compute the cost of materials that must be purchased:
Number of square meters of plastic required, Less: available in opening inventory, add: preferred amount at the end of the month

$2.19