Question 1). Exercise 8-10 Production and Direct Materials Budgets [LO8-3, LO8-4

Question

Question 1).

Exercise 8-10 Production and Direct Materials Budgets [LO8-3, LO8-4] 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 is now 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 be equal to 3,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 units. b. The raw materials inventory on hand at the end of each month must be equal to one-half of the following c. The company maintains no work in process inventories A sales budget for month's production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 54,000 cc of solvent H300 Supermix for the last six months of the year follows July August September October November December Budgeted Sales in Units 35,000 40,000 50,000 30,000 20,000 10,000

Explanation / Answer

Ans) Peral Products Limited Production Budget July August September October Budgeting unit sales 35000 40000 50000 30000 Add: desired unit of ending inventory 11000 13000 9000 7000 Total Needs 46000 53000 59000 37000 Less: Beginning Inventory 10000 11000 13000 9000 Required production in units 36000 42000 46000 28000 Peral Products Limited Direct Material Budget July August September Third Quarter Units of raw material needed to meet production 108000 126000 138000 372000 Add: Desired units of ending raw material inventory 63000 69000 42000 42000 Total Units of raw material needed 171000 195000 180000 414000 Less: Units of beginning raw material inventory 54000 63000 69000 54000 Units of raw material to be purchased 117000 132000 111000 360000 Working July August September October Required production(Units) 36000 42000 46000 28000 Material H300 needed per unit 3 3 3 3 cc Production needs(CC) 108000 126000 138000 84000

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