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The Casings Plant of Wyoming Machines makes plastics shells for the company’s calculators. (Each calculator requires one shell.) For each of the next two years, Wyoming expects to sell 160,000 calculators. The beginning finished goods inventory of shells at the Casings Plant is 20,000 units. However, the target ending finished goods inventory for each year is 5,000 units. Each unit (shell) requires 6 ounces of plastic. At the beginning of the year, 60,000 ounces of plastic are in inventory. Management has set a target to have plastic on hand equal to two months’ sales requirements. Sales and production take place evenly throughout the year. Required: a. Compute the total targeted production of the finished product for the coming year. b. Compute the required amount of plastic to be purchased for the coming year. (Do not round intermediate calculations.)

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Answer and Explanation:

a. The computation of the targeted production of the finished product is shown below:

= Expected sales units - beginning finished goods + ending finished goods

= 160,000 - 20,000 + 5,000

= 145,000 shells

b. The required amount of plastic purchased is

Plastic to be purchased = Consumed plastic + closing inventory - opening inventory

where,

Consumed plastic is

= 145,000 × 6 ounces

= 870,000 ounces

Opening inventory is 60,000  ounces

And, the closing inventory is

= 160,000  ÷ 12 months × 2 months × 6 ounces

= 160,000

So, the purchased plastic is

= 870,000 + 160,000 - 60000

= 970,000 ounces

The total targeted production of the finished product for the coming year is $145,000shells. The required amount of plastic to be purchased is 970,000 ounces.

What is inventory?    

All the raw materials available for production plus all the goods produced that are intended for sale are known as inventory.

A. Computing total targeted production of the finished product-

[tex]=Expected sales units - beginning finished goods + ending finished goods\\=160,000-20,000+5,000\\=145,000 shells[/tex]

B. Computing required amount of plastic to be purchased

[tex]=Consumed plastic+ closing inventory-inventory at end\\=870,000+160,000-60,000\\=970,000[/tex]

Working note-

  • Consumed plastic is calculated as 145,000 x 6 ounces.
  • Closing inventory is calculated as 160,000/12 x 2 x 6.

Therefore, the required amount of plastic to be purchased is 970,000.

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