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.How much cash is paid in August for pepper purchases (rounded to the nearest dollar)?

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.How much cash is paid in August for pepper purchases (rounded to the nearest dollar)?

Quizplus · Accepted Answer

Southern Inc. needs 80,000 jars x 0.25 kg/jar = 20,000 kg of peppers in July.  Southern Inc. wants to have 5% of the following month's production needs in ending inventory, so it wants to have 5% x 90,000 jars x 0.25 kg/jar = 1,125 kg of peppers in ending inventory in July.  Therefore, Southern Inc. needs to purchase 20,000 kg - 1,200 kg + 1,125 kg = 19,925 kg of peppers in July.  Southern Inc. pays 50% of a month's purchases in that month, so it pays 50% x 19,925 kg x $0.40/kg = $3,985 for pepper purchases in July.  Southern Inc. also needs to purchase 90,000 jars x 0.25 kg/jar = 22,500 kg of peppers in August.  Southern Inc. wants to have 5% of the following month's production needs in ending inventory, so it wants to have 5% x 70,000 jars x 0.25 kg/jar = 875 kg of peppers in ending inventory in August.  Therefore, Southern Inc. needs to purchase 22,500 kg - 1,125 kg + 875 kg = 22,250 kg of peppers in August.  Southern Inc. pays 50% of a month's purchases in that month, so it pays 50% x 22,250 kg x $0.40/kg = $4,450 for pepper purchases in August.  Therefore, Southern Inc. pays a total of $3,985 + $4,450 = $8,435 for pepper purchases in August.

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