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: 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 16,250 units. 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 81,375 cc of solvent H300. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows. Budgeted Unit Sales July 53,000 August 58,000 September 68,000 October 48,000 November 38,000 December 28,000 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 QUARTER Oct Nov Budgeted Sales Units 53,000 58,000 68,000 179,000 48,000 38,000 Add: Desired Ending Finished inventory 17,500 20,000 15,000 15,000 12,500 Total Needs 70,500 78,000 83,000 194,000 60,500 Less: Beginning Finished Inventory 16,250 17,500 20,000 16,250 15,000 Required Production in units 54,250 60,500 63,000 177,750 45,500 RAW MATERIAL PURCHASE BUDGET July Aug Sep QUARTER Oct Budgeted Production units 54,250 60,500 63,000 177,750 45,500 Raw material required per unit 3 3 3 3 3 Total Production needs 162,750 181,500 189,000 533,250 136,500 Add: Desired Ending Inventory 90,750 94,500 68,250 68,250 Total needs 253,500 276,000 257,250 601,500 Less: Beginning Inventory 81,375 90,750 94,500 81,375 Purchase Units 172,125 185,250 162,750 520,125

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