Pearl Products Limited of Shenzhen, China, manufactures and distributes toys thr

Question

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company's products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements a. The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 13,250 units b. The raw materials inventory on hand at the end of each month must equal one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 63,375 cc of solvent H300 C. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows July August September October November December Budgeted Unit Sales 41,000 46,000 56,000 36,000 26,000 16,000 Required 1. Prepare a production budget for Supermix for the months July, August, September, and October 3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total

Explanation / Answer

PRODUCTION BUDGET July Aug Sep October Nov Budgeted Sales Units 41,000 46,000 56,000 36,000 26,000 Add: Desired Ending Finished inventory 14,500 17,000 12,000 9,500 Total Needs 55,500 63,000 68,000 45,500 Less: Beginning Finished Inventory 13,250 14,500 17,000 12,000 Required Production in units 42,250 48,500 51,000 33,500 RAW MATERIAL PURCHASE BUDGET July Aug Sep Total October Budgeted Production units 42,250 48,500 51,000 141,750 33,500 Raw material Required per unit 3 3 3 3 3 Total Raw material requirement 126,750 145,500 153,000 425,250 100,500 Add: Desired Ending Inventory 72,750 76,500 50,250 50,250 Total needs 199,500 222,000 203,250 475,500 Less: Beginning Inventory 63,375 72,750 76,500 63,375 Purchase Units 136,125 149,250 126,750 412,125

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