Southern Inc. produces a line of salsas. Southern Inc. estimated production of jars of salsa for the third quarter of the year is as follows:
Each jar requires 0.25 kg of peppers. Southern Inc. prefers to buy the freshest peppers, so its policy is to have just 5% of the following month's production needs in ending inventory. On July 1, the company had 1,200 kg of peppers in inventory. Southern Inc. pays $0.40 per kilogram of peppers. It buys all peppers on account and typically pays 50% of a month's purchases in that month, and the remaining 50% the following month. $$\begin{array} { l l }
\text { July } & 80,000 \
\text { August } & 90,000 \
\text { September } & 70,000
\end{array}$$
-Refer to the Figure.What is the cost in dollars of purchases for July?

Question

Southern Inc. produces a line of salsas. Southern Inc. estimated production of jars of salsa for the third quarter of the year is as follows:
Each jar requires 0.25 kg of peppers. Southern Inc. prefers to buy the freshest peppers, so its policy is to have just 5% of the following month's production needs in ending inventory. On July 1, the company had 1,200 kg of peppers in inventory. Southern Inc. pays $0.40 per kilogram of peppers. It buys all peppers on account and typically pays 50% of a month's purchases in that month, and the remaining 50% the following month. $$\begin{array} { l l } 
\text { July } & 80,000 \
\text { August } & 90,000 \
\text { September } & 70,000
\end{array}$$
-Refer to the Figure.What is the cost in dollars of purchases for July?

Quizplus · Accepted Answer

The production needs for July are 80,000 jars, requiring 20,000 kg of peppers (80,000 * 0.25). The ending inventory for July should be 1,125 kg (5% of August's needs, which is 90,000 * 0.25). The total requirement for July is 21,125 kg (20,000 + 1,125). With a beginning inventory of 1,200 kg, the purchase requirement is 19,925 kg (21,125 - 1,200). At $0.40 per kg, the cost is $7,970 (19,925 * 0.40).

Southern Inc July 80,000 August 90,000 September 70,000\begin{array} { l l } \text { July } & 80,000 \\\text { August } & 90,000 \\\text { September } & 70,000\end{array} July August September ​80,00090,00070,000​

Southern Inc $\begin{array} { l l } \text { July } & 80,000 \\\text { August } & 90,000 \\\text { September } & 70,000\end{array}$