Exercise 7-10 Production and Direct Materials Budgets [LO7-3, LO7-4] Pearl Produ

Question

Exercise 7-10 Production and Direct Materials Budgets [LO7-3, LO7-4]

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:

The finished goods inventory on hand at the end of each month must be equal to 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 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 81,375 cc of solvent H300.

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.

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:

Explanation / Answer

Direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total is as shown below:

working:

Pearl products Limited Merchandise Purchase Budget For the quarter ended September 30 Month Particulars July August Sep Total Oct Sales 53,000 58,000 68,000 179,000 48,000 Add: Finished Goods Ending inventory 17,500 20,000 15,000 15,000 12,500 Less: Beginning Finished goods inventory 16,250 17,500 20,000 16,250 15,000 Cost of goods manufactured 54,250 60,500 63,000 177,750 45,500 Planned production units (a) 54,250 60,500 63,000 177,750 45,500 *Direct Material H 300 required per unit (b) 3.0 3.0 3.0 3.0 3 Direct Material Required for production (c ) 162,750 181,500 189,000 533,250 136500 Budgeted ending Direct Material (d) 90,750 94,500 68,250 68,250 Beginning Direct Material (e ) 81,375 90,750 94,500 81,375 Budgeted direct material purchase f= c+d-e 172,125 185,250 162,750 520,125

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