Exercise 8-10 Production and Direct Materials Budgets [LO8-3, LO8-4] Pearl Produ

Question

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 cubbc 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 fin shed goods Inventory on June 30 is budgeted to be 17,250 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 93,375 CCof solvent H300. C. The company maintains no work in process inventories A monthily sales budget for Supermix for the third and fourth quaiters of the year follows. Budgeted Unit Sales 61,000 66,000 September 76, 000 October ,000 November 46,000 December 36,000 July August L Prepare a production budget for Supermx 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. Complete this question by entering your answers in the tabs below Required Required Prepare a production budget for Supermix for the months July, August, September, and October. Production Budget Budgeted unit sales Total needs Required production in units

Explanation / Answer

Answer: Requirement 1 Pearl Products Limited Production Budget July August September October Budgeted Units Sales                    61,000                    66,000                    76,000                    56,000 Add: Ending inventory                    18,500                    21,000                    16,000                    13,500 Total Needs                    79,500                    87,000                    92,000                    69,500 Less: Beginning Inventory                    17,250                    18,500                    21,000                    16,000 Required Production in units                    62,250                    68,500                    71,000                    53,500 Where, Ending Inventory July August September October Ending Inventory 2000+66000*25% 2000+76000*25% 2000+56000*25% 2000+46000*25% 18500 21000 16000 13500 Requirement 2 Pearl Products Limited Direct material purchase budget July August September October a Required Production in units                    62,250                    68,500                    71,000                    53,500 b Quantity per Unit                               3                               3                               3                               3 a*b Required Raw material                  186,750                  205,500                  213,000                  160,500 Add: Ending Inventory                  102,750                  106,500                    80,250 Total needs                  289,500                  312,000                  293,250 Less: Beginning Inventory                    93,375                  102,750                  106,500 Direct material required for production                  196,125                  209,250                  186,750 Where, Ending Inventory July August September Ending Inventory 205500*50% 213000*50% 160500*50%                  102,750 106500 80250

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