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 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 4,000 units of Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 11,800 units. b. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 58,000 cc of solvent H300. C. The company maintains no work in process inventories. A sales budget for Supermix for the last six months of the year follows. July August September October November December Budgeted Sales in Units 39,000 44,000 54,000 34,000 24,000 14,000

Explanation / Answer

Direct materials budget July august September total total production required 40,000 46,000 50,000 136,000 cubic centimeters required per unit 3 3 3 3 units of raw materials needed 120000 138000 150000 408000 ending inventory 69000 75000 48,000 48,000 total materials required 189000 213000 198000 456000 less opening inventory 58,000 69,000 75,000 58,000 total materials required 131,000 144,000 123,000 398,000

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