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 2,000 units of Supermix plus 25% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 11,250 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 57,375 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 37,000 42,000 52,000 32,000 22,000 12,000 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

July August September october november december Expected units sales 37000 42000 52000 32000 22000 12000 Add: Desired ending finished goods units 12500 15000 10000 7500 5000 Total required units 49500 57000 62000 39500 27000 Less: beginning finished goods units 11250 12500 15000 10000 7500 Required prduction units 38250 44500 47000 29500 19500 July August September 3rd quarter october Units to be produced 38250 44500 47000 129750 29500 19500 units of raw materials needed per unit of finished goods 3 3 3 3 3 3 units of raw materials needed to meet production 114750 133500 141000 389250 88500 58500 Add: desired ending DM 66750 70500 44250 181500 29250 Total units of raw materials needed 181500 204000 185250 570750 117750 Less: beginning direct material 57375 66750 70500 194625 44250 Direct material purchases 124125 137250 114750 376125 73500

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